Annual
Report
and
Accounts
2009
Part
of
everyday
life
Expanding
our
sugar
business
Offering
a
bigger
retail
experience
Supplying
world
leading
brands
Working
on
a
global
scale
with
ingredients
Acquisition
of
the
leading
Iberian
sugar
producer,
Azucarera
Ebro
Sale
of
Polish
sugar
business
Restructuring
of
US
packaged
oils
business
new
joint
venture,
Stratas
Zambian
cane
sugar
expansion
completed
capacity
doubled
Investment
in
Chinese
beet
and
cane
sugar
Enzyme
capacity
investment
in
Finland
completed
Yeast
and
yeast
extracts
plant
under
construction
in
Harbin
New
Primark
stores
in
UK
and
Spain
and
first
openings
in
the
Netherlands,
Germany
and
Portugal
US
Private
Placement
secures
long-term
non-bank
finance
*
before
amortisation
of
non-operating
intangibles,
profits
less
losses
on
the
sale
of
PP&E,
inventory
fair
value
adjustment
and
exceptional
items.
**
before
amortisation
of
non-operating
intangibles,
profits
less
losses
on
the
sale
of
PP&E,
inventory
fair
value
adjustment,
profits
less
losses
on
the
sale
and
closure
of
businesses
and
exceptional
items.
Profit
before
tax
£495m
Down
6%
Group
revenue
£9.3bn
Up
12%
Adjusted
operating
profit*
£720m
Up
8%
Adjusted
profit
before
tax**
£655m
Up
4%
Adjusted
earnings
per
share**
57.7p
Up
5%
Dividends
per
share
21.0p
Up
4%
Net
investment
in
capital
expenditure
and
acquisitions
less
disposals
£832m
Net
debt
£999m
Operating
profit
£625m
Up
13%
Basic
earnings
per
share
45.5p
Up
1%
Our
highlights
of
the
year
Directors’
report
//
Business
review
//
Our
highlights
of
the
year
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
1
Associated
British
Foods
is
a
diversified
international
food,
ingredients
and
retail
group
with
sales
of
£9.3bn,
and
96,000
employees
in
44
countries.
We
aim
to
achieve
strong,
sustainable
leadership
positions
in
markets
that
offer
potential
for
profitable
growth,
and
deliver
quality
products
and
services
that
are
central
to
people’s
lives.
Directors’
report
Business
review
IFC
Our
highlights
of
the
year
2
Our
group
at
a
glance
4
Chairman’s
statement
6
Operating
review
24
Financial
review
Directors’
report
Governance
26
Corporate
responsibility
28
Board
of
directors
30
Corporate
governance
42
Remuneration
report
48
Other
disclosures
52
Statement
of
directors’
responsibilities
in
respect
of
the
annual
report
and
the
nancial
statements
53
Independent
auditors’
report
Financial
statements
54
Consolidated
nancial
statements
54
Consolidated
income
statement
55
Consolidated
balance
sheet
56
Consolidated
cash
ow
statement
57
Consolidated
statement
of
recognised
income
and
expense
58
Signifi
cant
accounting
policies
64
Notes
forming
part
of
the
nancial
statements
107
Company
nancial
statements
112
Progress
report
Shareholder
information
IBC
Company
directory
Contents
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
2
Directors’
report
//
Business
review
//
Our
group
at
a
glance
Sugar
&
Agriculture
Sugar,
Europe
British
Sugar’s
UK
beet
sugar
factories
produce
over
one
million
tonnes
of
sugar
annually.
Its
Spanish
business,
Azucarera,
produces
over
800,000
tonnes
of
sugar
each
year.
Sugar,
China
We
have
majority
interests
in
five
cane
sugar
mills
in
Guangxi
Province
and
operate
seven
beet
sugar
factories
in
the
north
east
of
the
country.
Continuous
investment
has
raised
annual
sugar
capacity
to
850,000
tonnes.
Sugar,
southern
Africa
Illovo
is
Africa’s
largest
sugar
producer
with
agricultural
and
production
facilities
in
six
countries.
Illovo
grows
5.1
million
tonnes
of
sugar
cane
itself
and
its
annual
sugar
production
is
1.9
million
tonnes.
Agriculture
AB
Agri
sells
animal
feed
to
farmers
and
purchases
grain
from
them.
It
also
provides
sustainable
supply
chain
solutions
to
food,
drink
and
biofuel
producers.
It
has
facilities
in
the
UK
and
China
and
markets
products
in
over
40
countries
worldwide.
Retail
Retail
Primark
is
a
major
value
retail
group
employing
over
27,800
people.
It
operates
stores
in
the
UK,
Republic
of
Ireland,
Spain,
the
Netherlands,
Portugal
and
Germany.
Targeted
at
the
fashion-conscious
under
35s,
Primark
offers
customers
high-quality
merchandise
at
value
for
money
prices.
Primark
prides
itself
on
its
loyal
customer
base.
Buying
and
merchandising
teams
in
Dublin
(Republic
of
Ireland)
and
Reading
(UK)
travel
internationally
to
source
and
buy
up-to-the-minute
fashion
items
that
best
reflect
each
season’s
key
fashion
trends.
Primark’s
range
of
departments
includes
womenswear,
lingerie,
childrenswear,
menswear,
footwear,
accessories,
hosiery
and
homeware.
The
group
operates
through
four
strategic
business
segments:
Sugar
&
Agriculture;
Retail;
Grocery;
and
Ingredients.
£2,579m
REVENUE
£223m
ADJUSTED
OPERATING
PROFIT
28%
PERCENTAGE
OF
TOTAL
REVENUE
£2,314m
REVENUE
£252m
ADJUSTED
OPERATING
PROFIT
26%
PERCENTAGE
OF
TOTAL
REVENUE
Directors’
report
//
Business
review
//
Our
Group
at
a
glance
Ingredients
Yeast
and
bakery
ingredients
AB
Mauri
operates
globally
in
yeast
and
bakery
ingredient
production
with
48
plants
in
27
countries,
supplying
plant
and
artisanal
bakers
and
the
foodservice
and
wholesale
channels.
It
is
a
technology
leader
in
bread
improvers,
dough
conditioners
and
bakery
mixes.
Speciality
ingredients
ABF
Ingredients
focuses
on
high-value
ingredients
for
food
and
non-food
applications.
It
manufactures
and
markets
enzymes,
yeast
extracts,
speciality
proteins
and
lipids.
£3,188m
REVENUE
£191m
ADJUSTED
OPERATING
PROFIT
35%
PERCENTAGE
OF
TOTAL
REVENUE
Grocery
Hot
beverages,
sugar
and
sweeteners
Twinings
and
Ovaltine
comprise
our
global
hot
beverages
business.
We
are
market
leaders
in
UK
sugar
with
Silver
Spoon
and
Billington’s.
Vegetable
oils
Mazola
is
the
leader
in
premium
corn
oil
in
the
US.
In
Mexico,
Capullo
is
a
premium
canola
oil.
Bread,
baked
goods
and
cereals
We
produce
Jordans
cereals
in
the
UK
and
leading
bakery
brands,
Kingsmill,
Ryvita,
and
Tip
Top
in
the
UK
and
Australia.
World
Foods
World
Foods
comprises
our
authentic
pan-Asian
food
brands,
Patak’s
and
Blue
Dragon.
Herbs
and
spices
We
are
a
leading
US
producer
of
herbs
and
spices
through
the
Tone’s,
Spice
Islands
and
Durkee
brands.
Meat
In
Australia
we
are
a
leading
supplier
of
ham,
bacon
and
smallgoods
through
the
Don
and
KRC
brands.
£989m
REVENUE
£88m
ADJUSTED
OPERATING
PROFIT
11%
PERCENTAGE
OF
TOTAL
REVENUE
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
4
Directors’
report
//
Business
review
//
Chairman’s
statement
This
is
my
first
report
to
shareholders
having
succeeded
Martin
Adamson
as
Chairman
in
April
and
I
am
pleased
to
be
able
to
report
another
good
performance.
Considerable
progress
was
made
in
the
development
of
the
group
during
the
year
with
significant
capital
expenditure,
the
restructuring
of
a
number
of
businesses
and
growth
in
adjusted
earnings
per
share
of
5%.
All
of
this
was
achieved
against
a
background
of
a
worldwide
economic
slow-down,
with
many
of
the
countries
in
which
we
operate
in
recession.
The
fact
that
we
have
been
able
to
continue
with
our
high
level
of
capital
investment
despite
these
economic
conditions
is
a
testament
to
the
strength
of
the
group’s
balance
sheet
and
our
ability
to
generate
cash.
A
number
of
major
long-term
projects
are
under
way
including
the
restructuring
of
our
meat
business
in
Australia,
the
combining
of
Jordans
and
Ryvita
in
the
UK,
the
creation
of
a
packaged
edible
oil
joint
venture
in
North
America,
capacity
expansions
for
Sugar
and
Ingredients
in
southern
Africa,
Europe
and
China,
the
building
of
the
Vivergo
biofuels
facility
in
the
UK
and
further
new
stores
for
Primark
across
Europe.
Such
investment
benefits
today’s
stakeholders
but
must
also
serve
their
interests
tomorrow.
Accordingly,
our
capital
investment
also
addresses
reduction
in
energy
and
water
usage
and
promotes
greater
use
of
renewable
fuels
in
our
factories.
The
major
infrastructure
projects,
particularly
in
the
developing
world,
will
provide
local
employment
opportunities
and
a
whole
range
of
other
social
benefits.
Group
revenue
increased
by
12%
to
£9.3bn
and
adjusted
operating
profit
was
up
8%
to
£720m.
With
over
50%
of
the
group’s
revenue
and
profit
arising
outside
the
UK,
the
weakness
of
sterling
had
a
favourable
currency
translation
effect
on
these
results.
Good
trading
was
delivered
by
a
number
of
our
businesses,
most
notably
from
sugar
in
the
UK
and
Africa,
Allied
Bakeries
and
Primark.
However,
the
difficulties
experienced
by
our
Chinese
sugar
operations
and
the
North
American
edible
oils
business,
evident
in
our
half
year
results,
held
back
profit
for
the
full
year.
Primark
continues
to
deliver
excellent
growth
in
both
revenue
and
profit,
achieved
through
strong
UK
like-for-like
sales
growth
and
the
addition
of
further
retail
selling
space.
Whilst
there
are
still
many
opportunities
to
extend
Primark’s
estate
in
the
UK
and
Ireland,
expansion
into
continental
Europe
represents
an
exciting
and
substantial
growth
prospect
for
this
highly
successful
business.
Our
European
sugar
operations
have
emerged
from
regime
reform
and
profit
is
returning
to
more
acceptable
levels.
For
a
relatively
modest
net
investment,
we
strengthened
our
position
in
European
sugar
with
the
acquisition
of
Azucarera
Ebro,
the
leading
sugar
producer
in
Iberia,
and
the
disposal
of
our
smaller
sugar
business
in
Poland.
Azucarera
will
provide
EU
refining
capacity
for
cane
raws
imported
from
least
developed
countries
and
is
expected
to
be
earnings
accretive
after
the
first
year.
Illovo
delivered
an
excellent
operating
result
and
continues
to
explore
the
significant
organic
expansion
opportunities
available
in
Africa.
Chairman’s
statement
Charles
Sinclair
Chairman
Directors’
report
//
Business
review
//
Chairman’s
statement
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
5
The
profitability
of
our
Chinese
sugar
businesses
was
severely
affected
by
low
sugar
prices
in
the
first
half
of
the
year
but
these
saw
some
recovery
in
the
second
half.
Profitable
development
of
the
beet
sugar
business
in
north
east
China
is
dependent
on
agricultural
improvements
and
factory
efficiencies
which
will
take
a
number
of
years
to
achieve.
The
challenges
experienced
by
our
grocery
businesses
last
year
from
extreme
movements
in
commodity
costs
were
not
repeated
but
were
replaced
instead
by
the
pressures
of
trading
in
a
recessionary
environment.
Although
results
in
the
first
half
were
significantly
affected
by
the
losses
sustained
on
high-priced
US
corn
oil
futures
contracts,
the
second
half
performance
was
much
better.
There
was
some
evidence
of
consumers
trading
down
to
cheaper
products,
but
the
group’s
major
grocery
brands,
particularly
Kingsmill,
held
up
well.
A
notable
landmark
in
the
development
of
the
group’s
cash-generating
ability
is
the
achievement
of
adjusted
earnings
before
interest,
tax,
depreciation
and
amortisation
of
£1bn.
Together
with
a
reduction
in
working
capital
during
the
year,
reflecting
an
increased
management
focus
and
lower
commodity
prices,
this
provided
the
funds
for
net
capital
expenditure
and
investment
in
new
businesses
of
£832m
including
debt
assumed
and
net
of
disposals.
The
events
in
the
financial
markets
since
last
year
end
have
turned
an
accounting
surplus
in
our
defined
benefit
pension
schemes
last
September
of
£61m
into
a
deficit
of
£106m.
This
deficit
is
somewhat
reduced
from
the
position
at
the
half
year
and,
in
the
context
of
the
group’s
resources,
is
manageable.
It
will
nevertheless
have
a
detrimental
effect
on
other
financial
income
in
the
coming
year.
Net
debt
at
the
end
of
the
year
was
£999m
despite
the
substantial
level
of
investment.
The
completion
of
the
US
private
placement
earlier
in
the
year
raised
some
US$600m,
lengthened
our
debt
maturity
profile
and
diversified
our
sources
of
financing.
The
group
now
has
a
very
comfortable
level
of
headroom
on
its
committed
bank
facilities.
This
provides
a
sound
platform
for
continued
investment.
Board
changes
I
began
my
report
by
referring
to
Martin
Adamson’s
retirement
in
April
this
year.
Martin
served
on
the
board
for
almost
ten
years,
of
which
more
than
six
were
as
Chairman,
and
in
that
time
steered
the
group
through
a
period
of
considerable
change.
Revenue
was
doubled.
The
trading
footprint
of
the
group
was
increased
from
16
countries
to
44
and
our
worldwide
workforce
tripled
with
the
substantial
investments
in
Africa,
China
and
Primark.
Martin’s
extensive
business
experience
and
sound
judgement
have
been
of
immeasurable
benefit
to
the
board
and
we
greatly
appreciate
the
substantial
contribution
he
has
made
to
the
group’s
success
over
the
last
decade.
We
wish
him
a
long
and
happy
retirement.
Employees
It
is
pleasing
during
a
time
of
worldwide
recession
and
widespread
unemployment
to
be
able
to
report
a
small
increase
in
the
size
of
our
workforce.
The
growth
of
the
business
has
resulted
in
the
number
of
our
employees
now
exceeding
96,000
and
I
would
like
to
thank
them
for
their
dedication
and
hard
work.
The
trading
environment
over
the
past
year
has
been
difficult
and
the
success
of
the
group
is
a
tribute
to
their
commitment
and
enthusiasm.
Dividends
A
final
dividend
of
14.1p
is
proposed,
to
be
paid
on
8
January
2010
to
shareholders
on
the
register
on
4
December
2009.
Together
with
the
interim
dividend
of
6.9p
paid
on
3
July
2009,
this
will
make
a
total
of
21.0p
for
the
year,
an
increase
of
4%.
Outlook
The
likely
scale
and
speed
of
economic
recovery
remains
uncertain,
and
we
are
cautious
about
the
outlook
for
the
UK
consumer
over
the
next
year.
However,
we
expect
good
revenue
and
operating
profit
growth
with
the
benefit
of
returns
from
our
recent
long-term
investments
and
restructuring
together
with
improvement
in
our
Chinese
and
US
businesses.
Net
financing
costs
will
be
higher
but
we
are
confident
of
progress
in
earnings
for
the
full
year.
Charles
Sinclair
Chairman
A
notable
landmark
in
the
development
of
the
group’s
cash
generating
ability
is
the
achievement
of
adjusted
earnings
before
interest,
tax,
depreciation
and
amortisation
of
£1bn.
The
group
delivered
satisfactory
results
at
a
time
when
economic
uncertainty
and
declining
consumer
spending
presented
our
businesses
with
considerable
challenges.
Group
revenue
increased
by
12%
to
£9.3bn
and
adjusted
operating
profit
increased
by
8%
to
£720m.
Sugar,
Primark
and
Ingredients
delivered
major
improvements
in
profit,
and
Agriculture
traded
well
and
matched
the
exceptional
performance
of
last
year.
Grocery
was
more
affected
and
its
profit
decline
was
mainly
attributable
to
long
positions
in
vegetable
oil
futures
taken
out
in
the
first
half
by
ACH
at
values
well
above
market.
Sterling’s
weakness
had
a
beneficial
effect
on
the
translation
of
profits
from
our
overseas
businesses.
Over
the
years
we
have
developed
the
group
through
a
combination
of
capital
investment,
process
improvement,
building
new
revenue
streams
and
the
acquisition
of
complementary
businesses.
Despite
the
economic
environment,
this
year
proved
to
be
no
exception
and,
if
anything,
the
pace
of
activity
increased
with
capital
investment
at
a
high
level.
All
of
our
businesses
have
been
strengthened
as
a
result
and
are
better
equipped
to
deliver
growth
in
the
future.
In
Sugar,
the
changes
to
the
EU
regime
are
now
behind
us
and
the
market
has
been
more
stable.
There
has
been
much
change
and
consolidation
of
producers
in
recent
years.
Our
leading
positions
in
the
UK
and
Iberia,
together
with
access
to
sugars
from
least
developed
countries,
position
us
well
for
the
EU
market
over
the
next
few
years.
We
expect
volume
growth
from
our
African
and
Chinese
operations
over
the
coming
years.
Illovo
has
ambitious
expansion
plans
and
the
doubling
of
capacity
in
Zambia
was
completed
this
year.
Although
profitability
was
held
back
by
low
prices
in
China,
the
addition
of
another
mill
in
southern
China
expands
this
consistently
profitable
operation.
Some
progress
was
made
in
the
beet
sugar
business
in
the
north
east
of
China
but
much
remains
to
be
achieved
in
improving
agricultural
yields
and
factory
efficiency.
Primark
had
a
remarkable
year.
Like-for-like
growth
of
7%
demonstrated
the
strong
development
of
its
consumer
franchise,
particularly
in
the
UK.
The
potential
of
continental
Europe
for
the
Primark
model
was
even
more
evident
this
year
and
we
are
committed
to
expansion
in
Spain
and
the
Netherlands.
Early
signs
in
Germany
and
Portugal
are
encouraging.
Development
of
our
Grocery
businesses
was
held
back
by
the
problems
at
ACH
in
the
first
half.
However,
it
is
noteworthy
that
considerable
work
was
undertaken
this
year
with
integration
work
in
our
meat
business
in
Australia,
Patak’s
and
Blue
Dragon,
Jordans
and
Ryvita
and
Stratas
in
the
US.
Each
of
these
businesses
will
emerge
much
stronger.
Capacity
expansion
was
the
major
feature
in
Ingredients
with
investment
in
enzymes,
yeast
and
yeast
extracts
all
of
which
have
demonstrated
their
growth
potential
in
recent
years.
A
number
of
long-term
capital
projects
are
in
progress
across
the
group,
many
of
which
are
expected
to
complete
during
2010.
They
will
contribute
to
the
continued
growth
of
our
businesses.
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
6
Directors’
report
//
Business
review
//
Operating
review
Operating
profi
t
by
segment
Sugar
25%
Agriculture
5%
Retail
33%
Grocery
25%
Ingredients
12%
Operating
profi
t
by
geography
UK
49%
Americas
12%
Asia
Pacific
9%
Europe
&
Africa
30%
George
Weston
Chief
Executive
Operating
review
Directors’
report
//
Business
review
//
Operating
review
//
Sugar
&
Agriculture
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
7
Over
the
years
we
have
developed
the
group
through
a
combination
of
capital
investment,
process
improvement,
building
new
revenue
streams
and
the
acquisition
of
complementary
businesses.
Despite
the
economic
environment,
this
year
proved
to
be
no
exception
and
the
pace
of
activity
increased.
SUGAR
&
AGRICULTURE
SUGAR
Revenue
£1,575m
(2008,
£1,267m)
Adjusted
operating
profit
£189m
(2008,
£153m)
The
results
from
Sugar
moved
substantially
ahead
this
year
with
both
revenue
and
profit
increasing
by
24%.
This
was
achieved
by
a
sharp
recovery
in
profit
at
British
Sugar
UK,
reversing
the
trend
of
declines
in
recent
years,
and
continued
growth
by
Illovo
which
more
than
offset
disappointing
results
in
China.
In
the
EU,
our
UK
and
Polish
businesses
increased
profit
with
good
factory
operating
performances,
robust
sales,
the
benefit
of
a
strong
euro,
a
reduction
in
the
restructuring
levy
and
favourable
energy
costs.
Very
favourable
growing
conditions
in
the
UK
yielded
an
excellent
beet
crop
with
sugar
per
hectare
at
record
levels
and
1.19
million
tonnes
of
sugar
was
produced.
Factory
operations
benefited
from
further
improvements
in
energy
efficiency,
returns
from
prior
year
investments
and
high
sugar
extraction
rates.
The
contribution
from
the
combined
heat
and
power
generation
plants
at
Bury
and
Wissington
increased
with
the
supply
of
electricity
to
the
grid
at
high
prices.
The
business
in
Poland
delivered
a
strong
commercial
performance
which
more
than
offset
lower
sugar
production
of
163,000
tonnes.
Restructuring
work
at
our
closed
factory
sites
in
York,
Dobre
and
Ostrawite
proceeded
to
plan
and
the
associated
renunciation
compensation
of
€116m
was
received
in
full
from
the
European
Commission
in
June
2009.
Following
the
renunciation
of
quota
across
the
EU
in
2008,
supply
and
demand
of
sugar
in
the
market
has
been
broadly
balanced.
This
has
led
to
more
stability
for
pricing.
The
final
changes
relating
to
reform
of
the
EU
sugar
regime
took
place
at
the
beginning
of
October
2009
and
no
further
changes
are
anticipated
until
the
next
review
which
is
expected
to
be
implemented
from
October
2015.
A
number
of
developments
during
the
year
strengthened
our
presence
in
the
EU
market.
We
acquired
Azucarera
Ebro,
the
leading
sugar
producer
in
Iberia,
in
April
this
year.
It
operates
from
four
beet
factories,
three
in
the
north
of
Spain
and
one
in
the
south.
A
sugar
refinery
is
being
commissioned
on
the
site
of
the
southern
factory,
given
its
proximity
to
the
port
of
Cadiz,
and
it
will
have
the
capacity
to
produce
400,000
tonnes
of
sugar.
The
supply
of
cane
raws
is
expected
to
be
primarily
from
Illovo.
In
August
we
announced
that
we
had
reached
agreement
to
sell
our
Polish
sugar
business,
the
country’s
fourth
largest
producer,
to
Pfeifer
&
Langen.
Completion,
which
is
subject
to
regulatory
approval,
is
expected
in
late
2009.
During
the
year
British
Sugar
established
a
joint
venture
with
Illovo,
Mitra
Sugar,
to
source
sugars
from
outside
the
EU
and
market
them
to
companies
within
the
EU.
As
a
result
of
our
leading
positions
in
the
UK
and
now
in
Iberia,
together
with
access
to
the
sugars
of
the
least
developed
countries,
we
have
a
strong
platform
for
the
future.
Illovo
delivered
an
excellent
operating
result
driven
by
strong
sales.
These
resulted
from
higher
local
market
prices,
currency
translation
gains
for
the
operations
outside
South
Africa
and
by
recovery
of
the
world
sugar
price.
Sugar
production
was
lower
than
expected
at
1.9
million
tonnes,
with
poor
weather
conditions
in
South
Africa
impacting
the
cane
crop
and
excessive
rains
and
early
commissioning
difficulties
impacting
volume
throughput
at
the
expanded
mill
in
Zambia.
In
contrast
Malawi
had
another
excellent
year
with
good
production
volumes
and
operating
performances.
PART
OF
EVERYDAY
LIFE…
We
have
built
a
global
sugar
business
with
operations
in
China,
Europe
and
Africa
in
which
we
continue
to
invest
Understanding
the
bigger
picture
is
an
essential
component
of
British
Sugar
Group’s
successful
strategy
which
has
seen
its
revenue
grow
from
£700m
to
£1.6bn
in
four
years.
A
prime
example
of
this
strategic
vision
has
been
in
its
adaptation
to
the
EU’s
decision
to
allow
duty-free
imports
of
raw
sugar
from
the
Least
Developed
Countries
(LDCs)
from
1
October
2009.
By
stimulating
trade
between
the
EU
and
many
of
the
world’s
poorest
countries,
this
policy
is
designed
to
aid
economic
development.
At
the
same
time,
the
European
Commission
also
realised
that
many
LDCs
lacked
the
infrastructure
to
take
advantage
of
these
new
trading
opportunities.
Take
Swaziland
for
example.
Here
subsistence
agriculture
employs
70%
of
the
population
and
overgrazing,
soil
depletion
and
drought
are
real
problems.
In
response,
the
EU
invested
in
programmes
such
as
the
construction
of
an
irrigation
dam
and
canal
system
at
Lubovane.
Opened
in
March
2009,
it
allows
local
farmers
to
grow
higher
value
crops,
including
sugar
cane.
But
growing
crops
is
only
one
part
of
the
story,
which
is
where
British
Sugar
Group
comes
in.
Illovo
is
working
closely
with
local
farmers
and
smallholders
to
grow
cane,
which
in
turn
has
justified
the
expansion
of
the
Ubombo
factory.
Alongside
this
there
are
plans
to
generate
more
renewable
energy
from
the
cane
biomass
with
the
surplus
electricity
feeding
into
Swaziland’s
national
grid.
In
Europe,
British
Sugar
and
Illovo
established
Mitra
Sugar,
a
trading
company
which
acts
as
a
bridge
between
LDC
sugar
producers
seeking
to
export
to
the
EU
and
European
refiners.
One
of
Mitra’s
customers
is
Azucarera
Ebro,
Iberia’s
premier
sugar
company
which
joined
the
British
Sugar
Group
in
April
2009.
Azucarera’s
new
refinery
at
Guadalete
comes
on
stream
in
late
2009
and
will
process
up
to
400,000
tonnes
of
raw
sugar,
turning
it
into
sugar
products
for
both
manufacturers
and
retail
customers
across
southern
Europe.
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
10
Directors’
report
//
Business
review
//
Operating
review
//
Sugar
&
Agriculture
//
Case
study
EVERYDAY
LIFE
IN
SUGAR
Above:
In
April
2009,
Azucarera
Ebro,
the
leading
sugar
producer
in
Iberia,
joined
the
group.
2009:
£1.6bn
BRITISH
SUGAR
GROUP
HAS
MORE
THAN
DOUBLED
REVENUE
IN
THE
PAST
FOUR
YEARS
2005:
£700m
Directors’
report
//
Business
review
//
Operating
review
//
Sugar
&
Agriculture
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
11
AGRICULTURE
Revenue
£1,004m
(2008,
£867m)
Adjusted
operating
profit
£34m
(2008,
£33m)
AB
Agri
had
another
very
strong
year
continuing
to
perform
well
above
expectations
in
a
market
that
experienced
lower
commodity
prices
but
with
continued
volatility.
Growth
was
achieved
both
in
its
UK
and
international
operations,
driven
by
good
market
experience,
trading
and
nutritional
expertise
and
by
excellent
performances
from
new
business
streams.
Frontier,
our
grain
and
crop
inputs
supply
joint
venture,
produced
exceptional
results
having
anticipated
the
correction
in
the
value
of
the
global
grain
markets
and
the
increased
demand
for
seed,
fertiliser
and
crop
protection
products.
In
a
quite
different
market
from
the
previous
year,
Frontier’s
unique
national
grain
trading
structure
and
its
integrated
crop
inputs
supply
business
enabled
it
to
respond
quickly
to
changing
customer
demand.
Its
national
network
for
grain
trading
and
exporting
facilities
was
ideally
suited
to
merchandising
the
UK
crop
which
was
not
only
large
but
also
of
variable
quality.
KW
Trident,
our
ruminant
feeds
business,
significantly
increased
its
presence
in
the
UK
blends
market.
AB
Vista
delivered
excellent
sales
growth
of
its
high-technology,
valued-added
feed
enzymes,
and
a
new
enzyme,
Econase
XT,
was
recently
granted
approval
by
the
European
Food
Safety
Authority.
International
sales
of
our
other
specialist
products,
pre-mixes
and
piglet
starter
feeds,
continued
to
grow,
particularly
in
the
developing
markets
of
Eastern
Europe.
As
part
of
our
sustainable
supply
chain
offerings
to
processors
and
retailers,
AB
Agri
has
developed
the
first
Carbon
Trust
accredited
greenhouse
gas
reduction
model
for
dairy
farms.
This
has
been
used
to
help
Sainsbury
reduce
the
overall
greenhouse
gas
emissions
from
its
milk-supplying
farms.
Sainsbury
has
recently
signed
an
agreement
with
AB
Agri
to
extend
this
carbon-scoring
work
to
include
beef,
lamb,
pork,
poultry
and
eggs
in
its
UK
supply
chain.
This
will
require
AB
Agri
to
carbon
footprint
more
than
18,000
farms
over
the
next
four
years.
We
continued
to
invest
in
our
compound
feed
business
in
China.
We
opened
a
new
mill
in
Henan
province
to
meet
this
market’s
high
demand
for
pig
feed,
replacing
an
old
leased
mill,
and
began
construction
of
a
new
ruminant-specific
mill
in
Tianjin.
When
complete,
this
expansion
will
have
delivered
a
20%
increase
in
production
capacity.
Our
business
in
Zambia
achieves
the
highest
cane
yield
per
hectare
of
any
of
Illovo’s
operations
at
levels
which
are
world
class.
During
the
year
we
completed
the
doubling
of
capacity
in
Zambia
as
well
as
smaller-scale
expansion
projects
in
Swaziland,
Mozambique
and
Tanzania.
Streamlining
of
the
South
African
business
continued
with
the
sale
of
the
Umfolozi
and
Pongola
mills
and
creation
of
a
new
joint
venture
at
Gledhow.
Illovo
successfully
raised
rand
3bn
of
additional
capital
through
a
rights
issue
to
finance
its
future
expansion
plans.
Proceeds
were
received
in
late
September
after
the
group’s
year
end.
The
Zambian
business
completed
a
US$50m
rights
issue
during
the
year
to
finance
its
capacity
increase.
Our
businesses
in
China
had
a
very
difficult
year
with
the
significant
sugar
stock
overhang
from
2007/8
depressing
prices
during
the
first
half.
A
reduced
crop
in
the
north,
with
exceptionally
low
sugar
content,
impacted
operating
costs.
Sugar
prices
in
China
rallied
in
the
second
half
driven
by
government
purchases,
a
smaller
national
crop
this
year
and
higher
world
sugar
prices.
Importantly
for
the
price
outlook,
consumption
exceeded
production
in
China
by
some
1.7
million
tonnes
in
2008/9.
Looking
forward
the
business
will
be
strengthened
by
the
commissioning
of
the
new
cane
sugar
mill
at
Jinchengjiang
and
by
the
beet
sugar
business
focusing
on
the
development
of
agriculture
and
production
in
seven
of
its
12
factories.
Construction
of
Vivergo’s
wheat
bioethanol
plant
is
progressing
well
at
Hull
in
the
UK,
with
commissioning
now
planned
for
autumn
2010.
All
major
plant
items
have
now
been
received
and
installation
is
well
under
way.
Contracts
have
been
signed
with
AB
Agri
to
supply
wheat
from
Frontier
and
for
the
sale
of
the
distillers’
grain
co-products.
It
is
expected
that
a
yeast
supply
agreement
with
AB
Mauri
will
be
signed
shortly.
The
European
market
for
bioethanol
is
still
in
its
infancy
but
is
expected
to
grow
considerably
over
the
next
few
years.
The
UK
mandate
for
the
inclusion
of
renewables
in
transport
fuel
requires
the
current
3.25%
to
increase
to
5%
by
2013/14.
Longer
term,
the
EU
Renewable
Energy
Directive
will
require
the
member
states
to
derive
10%
of
transport
fuel
from
renewable
sources
PART
OF
EVERYDAY
LIFE…
Primark
is
taking
its
winning
formula
to
the
rest
of
Europe
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
14
Whilst
there
are
still
many
opportunities
to
extend
Primark’s
estate
in
the
UK,
expansion
into
continental
Europe
represents
an
exciting
and
substantial
growth
prospect
RETAIL
Revenue
£2,314m
(2008,
£1,933m)
Adjusted
operating
profit
£252m
(2008,
£233m)
Primark
celebrates
its
40th
birthday
this
year
and
Arthur
Ryan,
its
founder
and
chief
executive
throughout
its
rise
to
become
a
leading
force
on
the
high
street,
has
chosen
this
landmark
to
announce
that
he
will
stand
down
as
chief
executive
to
concentrate
on
his
role
as
Chairman.
Responsibility
for
the
day-to-day
running
of
the
business
has
been
assumed
by
Paul
Marchant
as
chief
executive.
Mr
Marchant
was
appointed
chief
operating
officer
in
January
and
brings
with
him
a
wealth
of
experience
in
retailing.
Since
then,
he
has
worked
closely
with
Mr
Ryan
and
the
strong
management
team.
Mr
Ryan’s
skill
and
experience
will
play
an
important
part
in
maintaining
the
growth
momentum
and
pursuing
the
significant
strategic
opportunities
available
to
this
business.
Primark
again
delivered
exceptional
sales
and
profit
growth
even
though
each
of
its
three
main
markets
were
subject
to
recessionary
pressure
and
a
decline
in
consumer
confidence.
Sales
increased
by
20%
as
a
result
of
growth
in
selling
space
and
like-for-like
sales
growth
of
7%.
The
value
sector
continued
to
capture
an
increasing
share
of
the
UK
clothing
retail
market
and
Primark
is
in
the
vanguard
of
this
movement.
Organic
growth
was
also
achieved
through
Primark’s
strong
competitive
position,
its
highly
appealing
merchandise
and
better
weather
than
last
year.
Operating
profit
margin
declined
from
12.1%
to
10.9%
this
year,
primarily
as
a
result
of
the
increased
fixed
overhead
of
the
new
UK
distribution
centre
at
Thrapston.
The
weakness
of
sterling
during
the
year
significantly
increased
the
cost
of
goods
sourced
in
US
dollars.
As
a
result
of
forward
buying
of
currency,
this
mainly
affected
the
second
half
of
the
financial
year.
However,
the
impact
on
gross
margins
was
mitigated
by
better
buying,
lower
freight
costs
and
a
more
profitable
sales
mix.
A
further
gross
margin
reduction
is
expected
for
the
forthcoming
period
up
to
Christmas
but
with
an
improvement
at
the
beginning
of
2010
with
the
benefit
of
forward
buying
of
US
dollars
at
improved
exchange
rates.
We
opened
12
new
stores
during
the
year:
five
in
Spain,
four
in
the
UK
and
our
first
stores
in
each
of
the
Netherlands,
Germany
and
Portugal.
We
closed
smaller
stores
in
Bristol
and
Tooting
when
the
new
stores
were
opened
there.
The
new
Bristol
store
is
our
second
largest
after
Manchester,
trading
from
100,000
sq
ft
over
four
floors.
This
brings
the
total
number
of
stores
trading
by
the
year
end
to
191,
from
5.9
million
sq
ft
of
selling
space
which
is
an
increase
of
9%
since
last
year
end.
Our
stores
in
continental
Europe
performed
well
although
it
is
still
early
days
for
Germany
and
Portugal.
Plans
are
in
place
to
open
11
new
stores
in
the
coming
year,
including
our
first
store
in
Belgium,
and
there
is
a
good
pipeline
of
further
stores.
As
Primark
has
grown,
its
record
on
ethical
trading,
in
common
with
all
clothing
retailers,
has
been
subject
to
close
scrutiny.
It
offers
good
quality
fashion
at
low
prices
because
it
purchases
very
large
volumes
and
has
low
mark-ups,
minimal
advertising
and
low
overheads.
Primark’s
success
is
also
a
result
of
its
ability
to
respond
quickly
to
changes
in
the
marketplace
with
its
flat
management
structure,
a
strong
buying
team
and
an
excellent
distribution
capability.
More
than
95%
of
its
third-party
suppliers
are
shared
with
other
leading
European
high
street
brands.
Sourcing
from
developing
countries
carries
with
it
an
obligation
to
ensure
that
workers
making
garments
are
treated
fairly.
Primark
takes
this
responsibility
seriously
and
has
contributed
to
the
industry-wide
efforts
to
improve
labour
standards.
Primark
has
committed
to
undertake
over
1,000
audits
in
2009,
nearly
doubling
the
number
achieved
last
year.
A
new
Ethical
Trade
Director
has
been
appointed
along
with
a
number
of
other
appointments
based
in
the
main
regions
from
which
we
source.
Relationships
with
non-government
organisations
have
been
strengthened,
especially
in
China,
India
and
Bangladesh.
Projects
relating
to
the
determination
of
a
living
wage,
women’s
rights
and
home-working
are
under
way.
New
store
openings:
Algeciras
(Spain)
Oviedo
(Spain)
Bristol
(UK)
relocation
Barcelona
(Spain)
Rotterdam
(Netherlands)
Corby
(UK)
La
Coruna
(Spain)
Bremen
(Germany)
High
Wycombe
(UK)
La
Gavia
(Spain)
Lisbon
(Portugal)
Tooting
(UK)
relocation
Directors’
report
//
Business
review
//
Operating
review
//
Retail
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
15
EVERYDAY
LIFE
IN
RETAIL
25%
THE
MARKET
SHARE
THAT
VALUE
RETAILERS
ENJOYED
IN
2008.
IN
1998
IT
WAS
11%
PRIMARK
HAS
MORE
THAN
TRIPLED
ITS
RETAIL
SELLING
SPACE
SINCE
2001
2009:
5.9m
sq
ft
2001:
1.7m
sq
ft
Value
retailing
has
grown
enormously
over
the
past
decade.
Verdict
Research
estimates
that
value
clothing
retailers
have
increased
their
market
share
from
11%
in
1998
to
25%
in
2008.
Primark
has
been
in
the
vanguard
of
this
trend
to
the
extent
that
some
commentators
predict
a
long-term
shift
in
consumer
behaviour
towards
value,
which
they
have
dubbed,
the
‘Primark
Effect’.
From
its
foundation
in
Ireland
in
1969,
Primark
established
a
winning
formula
using
a
retail
model
based
on
highly
competitive
pricing
and
fast-changing
fashion-conscious
product
lines.
Throughout
its
development
it
has
demonstrated
tenacious
adherence
to
these
principles
while
displaying
considerable
agility
in
adapting
to
changes
in
both
the
market
environment
and
consumer
behaviour.
The
last
two
decades
have
been
the
era
of
‘fast
fashion’
during
which
catwalk-looks
and
celebrity
creations
have
been
converted
at
ever-increasing
speed
into
affordable
purchases
for
everyone.
This
has
been
fuelled
by
growth
in
the
numbers
and
purchasing
power
of
middle
income
groups
and
in
particular
by
a
new
affl
uence
amongst
the
young
who
enjoy
expressing
themselves
through
fashion,
music
and
leisure.
High
fashion
turnover
has
spurred
frequency
of
shopping
trips
and
higher
than
industry
average
sales
per
square
foot.
Moreover
it
has
driven
the
footfall
necessary
to
generate
volume
purchase
in
other
categories
within
the
stores
such
as
footwear,
lingerie
and
homeware.
Primark
over
this
period
has
enjoyed
a
consistently
growing
share
of
a
growing
sector.
But
there
has
been
another
dynamic
which
has
driven
the
remarkable
growth
of
the
business.
Since
2001,
Primark
has
grown
its
selling
footprint
from
1.7m
sq
ft
to
5.9m
sq
ft.
A
significant
feature
of
this
growth
has
been
the
increase
in
average
store
size
over
that
period
from
16,000
sq
ft
to
30,000
sq
ft.
Compared
to
the
1990s,
new
stores
tend
to
be
bigger
than
the
average
(the
Manchester
agship
store
was
extended
to
136,000
sq
ft
last
year).
The
high
profile
of
the
70,000
sq
ft
Oxford
Street
store
has
helped
affirm
the
brand
as
a
leading
value
retailer
in
the
UK.
To
achieve
this
transformation,
ABF
has
invested
over
£1bn
on
new
stores,
extensions
to
existing
stores
and
new
fit-outs
since
2005.
As
a
result,
Primark
has
transformed
itself
from
its
origins
as
a
low
price-point,
tertiary-located
clothing
retailer
into
a
leading
value
retailer
in
the
UK.
Although
competition
and
change
in
consumption
patterns
are
potential
competitive
threats,
Primark
has
consistently
shown
superior
growth
to
the
clothing
category
overall.
It
would
seem
for
an
ever-growing
army
of
satisfied,
fashion-conscious
customers,
Primark
has
indeed
become
a
part
of
everyday
life.
Directors’
report
//
Business
review
//
Operating
review
//
Retail
//
Case
study
PART
OF
EVERYDAY
LIFE…
Our
grocery
brands
are
enjoyed
by
households
all
over
the
world
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
18
Directors’
report
//
Business
review
//
Operating
review
//
Grocery
GROCERY
Revenue
£3,188m
(2008,
£2,820m)
Adjusted
operating
profit
£191m
(2008,
£194m)
Grocery
revenue
increased
by
13%
to
£3,188m
driven
by
the
full
year
effect
of
price
increases
taken
in
the
previous
financial
year,
favourable
translation
resulting
from
the
weakness
of
sterling,
the
inclusion
of
Jordans
and
some
volume
growth.
Profit
declined
by
2%
to
£191m
mainly
as
a
result
of
the
first
half
problems
of
ACH
in
the
US
and
a
highly
competitive
UK
retail
sugar
market
for
Silver
Spoon.
By
contrast,
Allied
Bakeries
and
Twinings
Ovaltine
made
very
good
progress.
In
the
US
and
Mexico,
profitability
at
ACH
was
heavily
impacted
in
the
first
half
by
taking
long
positions
in
vegetable
oil
futures
at
values
well
above
the
current
market
after
a
period
when
vegetable
oil
prices
had
risen
sharply.
Volumes
of
Mazola
and
Capullo
were
lower
than
last
year
as
a
reaction
to
the
consequentially
higher
consumer
prices.
The
performance
in
the
second
half
steadily
improved
with
higher
Mazola
volumes,
following
its
consumer
price
reductions,
and
the
full
utilisation
of
the
oil
futures.
Difficult
market
conditions
have
hampered
the
recovery
of
Capullo
in
Mexico.
Home
baking
products
and
spices
had
a
good
year.
Good
progress
was
made
with
the
integration
of
the
foodservice,
speciality
food
ingredient
and
retail
private-label
bottled
oils
businesses
in
Stratas,
the
50%
joint
venture
formed
with
Archer
Daniels
Midland
(ADM)
in
October.
The
products
produced
at
ACH’s
factories
are
being
transferred
on
a
phased
basis
to
the
low-cost
facilities
contributed
by
ADM
to
Stratas.
Major
cost
savings
will
be
realised
when
ACH’s
facilities
are
finally
closed
in
spring
2010.
Following
the
transfer
of
its
commodity
oils
business
to
Stratas,
ACH
has
rationalised
its
overhead
and
focused
on
improvements
to
its
processes
to
support
what
is
now
a
branded
food
business.
In
Australia,
revenue
was
well
ahead
of
last
year
reflecting
the
recovery
of
higher
input
costs
and
a
strong
performance
from
milling.
Profit
was
also
ahead
although
margin
pressure
was
a
feature
both
in
the
baking
and
meat
businesses.
A
number
of
new
products
were
launched
during
the
year.
Following
the
closure
of
the
Canberra
and
Orange
bakeries,
announced
at
the
end
of
last
year,
the
consolidation
of
baking
in
New
South
Wales
was
completed
with
the
upgrade
of
the
Newcastle
bakery.
New
product
launches
and
packaging
formats
were
also
used
to
develop
the
Don
and
KR
Castlemaine
brands
following
the
combination
of
these
meat
businesses
last
year.
Rationalisation
is
progressing
to
plan
with
the
closure
of
the
factory
in
Perth
and
the
start
of
the
construction
of
the
new
factory
in
Castlemaine.
The
UK
grocery
businesses
made
further
progress
led
by
a
strong
performance
from
Allied
Bakeries
where
sales
improved
through
distribution
gains,
delivered
on
the
back
of
stronger
trading
relationships.
In
June
this
year
Kingsmill
became
the
first
UK
bread
brand
to
use
the
Carbon
Trust’s
Carbon
Reduction
Label
when
it
featured
the
label
on
its
Great
Everyday
White,
Tasty
Wholemeal
and
50/50
loaves.
At
the
end
of
the
year
we
launched
the
Little
Big
Loaf
in
response
to
consumer
demand
for
a
loaf
with
full-sized
slices
but
fewer
of
them.
Early
indications
are
that
this
unique
offering
has
been
well
received
by
the
market.
Following
an
increased
focus
on
health
and
safety
in
its
commercial
eet,
which
covers
one
million
kilometres
each
week,
the
business
was
delighted
to
receive
an
award
for
its
promotion
of
safe
driving
by
its
employees.
Twinings
Ovaltine
is
a
successful
international
business
which
benefited
from
the
favourable
translation
of
the
results
of
its
overseas
operations
into
sterling.
It
also
delivered
good
volume
growth,
particularly
from
Ovaltine,
in
its
developing
markets
with
strong
growth
in
Asia
and
the
newer
markets
of
Nigeria
and
Brazil.
Growth
slowed
in
Twinings
as
volumes
of
its
premium
products
were
affected
but
there
was
high
consumer
demand
for
Everyday
tea.
In
the
UK,
a
new
television
and
press
campaign
supporting
Twinings
speciality
teas
was
introduced
in
May
with
encouraging
results.
The
Twinings
brand
also
performed
well
in
Australia
supported
by
a
successfully
executed
marketing
plan
including
television
commercials.
On
2
November
2009
Twinings
announced
that
it
was
entering
a
period
of
consultation
with
employees
over
a
proposed
reorganisation
of
its
tea
manufacturing
footprint.
The
changes
will
ensure
that
manufacturing
will
be
closer
to
its
major
customer
markets,
it
will
have
the
capacity
to
meet
future
growth
demands
and
it
will
be
lower
cost
and
more
efficient
than
the
current
configuration.
It
is
proposed
to
invest
in
high-speed,
automated
packaging
equipment
at
Andover
to
produce
high-volume
products
mainly
destined
for
the
UK
market.
The
Chinese
factory
would
be
doubled
in
size
and
would
concentrate
on
the
US
and
Asia
Pacific
markets
and
a
new
factory
to
be
built
in
Poland
would
specialise
in
rest-of-world
markets.
The
factory
in
Newcastle
would
close.
The
programme
would
take
over
two
years
to
complete.
The
charge
for
this
reorganisation
of
some
£19m,
of
which
£8m
is
non-cash,
would
be
included
in
the
income
statement
for
the
2009/10
financial
year.
Silver
Spoon
experienced
a
highly
competitive
market
but
benefited
from
increased
demand
for
home
baking
ingredients.
This,
combined
with
distribution
gains,
resulted
in
higher
sales
and
market
share
across
the
Silver
Spoon
sugar
and
Allinson
our
ranges.
The
Silver
Spoon
brand
was
extended
into
the
growing
cake
making
and
decorating
category
with
the
launch
of
the
Cakecraft
range
in
June.
Closure
of
the
Newark
packaging
plant
and
transfer
of
operations
to
an
expanded
plant
at
Bury
St.
Edmunds
is
virtually
complete.
This
year
we
successfully
integrated
Jordans
Cereals
and
Ryvita
into
a
single
business
headquartered
in
Biggleswade,
with
common
systems
and
processes.
This
was
achieved
on
time
and
on
budget
whilst
maintaining
a
high
level
of
service
to
customers.
Ryvita
continued
to
perform
well
with
good
year-on-year
sales
growth
in
its
core
crispbread
business.
Jordans’
trading
improved
during
the
year,
after
a
slow
start,
with
growth
achieved
in
most
of
its
key
branded
lines.
The
Country
Crisp
range
was
rationalised
and
responded
well
to
its
relaunch
with
improved
recipes
and
new
packaging.
The
ethnic
foodservice
sector
in
the
UK
continued
to
suffer
from
the
effects
of
recession
which
impacted
sales
by
Westmill
Foods.
Profit
was
lower
than
last
year
as
a
consequence
but
our
main
brands,
Lucky
Boat,
Patak’s,
Green
Dragon,
Habib
and
Rajah
continued
to
develop
well.
Rajah
was
relaunched
in
the
summer
to
coincide
with
its
participation
in
three
regional
UK
cultural
events
celebrating
Asian
music,
dance
and
food.
Last
year
AB
World
Foods
successfully
combined
the
Blue
Dragon
and
Patak’s
businesses
with
the
creation
of
a
single
supply
chain
and
the
commissioning
of
a
new
sauces
factory
in
Poland
for
Blue
Dragon.
This
year
we
have
focused
on
delivering
the
benefits
of
this
combination
and
achieved
a
strong
sales
performance.
Margin
was
impacted
by
adverse
commodity
and
currency
movements.
The
Blue
Dragon
brand
continued
to
grow
driven
by
the
success
of
its
stir-fry
and
sweet
chilli
dipping
sauces.
The
Patak’s
brand
has
undergone
a
major
relaunch
with
new
and
improved
recipes
and
a
new
television
advertising
campaign
focusing
on
the
Pathak
family
heritage.
Meena’s,
a
premium
Indian
sauce
range
launched
in
the
UK
a
year
ago,
has
quickly
established
itself
with
availability
in
all
major
supermarkets.
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
19
Directors’
report
//
Business
review
//
Operating
review
//
Grocery
//
Case
study
It’s
7am
in
New
York
city
and
an
executive
looks
out
on
the
Manhattan
skyline
while
drinking
a
refreshing
cup
of
Twinings
tea.
3,400
miles
away
in
London
a
schoolboy
is
eating
his
lunchtime
sandwich
made
with
Kingsmill
bread
and
simultaneously
in
Bangkok,
mum
is
giving
the
children
their
evening
snack
with
a
cooling
and
nutritious
glass
of
Ovaltine.
Each
and
every
day
our
grocery
brands
are
enjoyed
by
millions
of
people
around
the
world.
Encompassing
a
range
of
food
categories
that
includes
sugar,
bread,
cooking
oils,
breakfast
cereals,
packed
meats
and
hot
beverages;
our
Grocery
business
is
built
on
brands
that
are
known
and
trusted
in
diverse
cultures
across
the
globe.
To
build
and
maintain
a
business
of
this
scale
requires
investment,
expertise
and
skill
in
specific
product
sectors
and
markets.
Our
operating
model
is
based
on
empowering
the
best
management
teams
to
service
markets
in
which
they
have
expertise.
Whether
that
entails
building
and
expanding
the
Twinings
tea
business
globally
or
selecting
the
best
Pakistani
basmati
rice
for
export
to
the
UK,
we
employ
experts
who
are
focused
on
meeting
and
exceeding
the
requirements
of
consumers
in
local
markets
across
the
globe.
Our
long-term
business
objective
is
to
grow
organically
and
by
acquisition
in
complementary
activities,
while
striving
to
achieve
high
levels
of
operating
efficiency.
Our
baking
businesses,
for
example,
include
centres
of
expertise
in
the
UK,
Australia
and
New
Zealand
with
products
that
span
everyday,
premium
and
part-baked
catering
breads.
This
gives
us
the
scale
and
expertise
to
provide
the
baked
products
people
want
to
eat
at
the
best
possible
prices.
Whether
it
is
a
pecan
pie
made
with
Karo
corn
syrup
in
Birmingham,
Alabama,
or
a
cup
of
Nambarrie
tea
in
Belfast
Northern
Ireland,
our
products
form
part
of
everyday
life
around
the
world.
EVERYDAY
LIFE
IN
GROCERY
We
are
a
leader
in
yeast
and
bakery
ingredients,
supporting
local
markets
on
a
global
scale
PART
OF
EVERYDAY
LIFE…
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
22
Directors’
report
//
Business
review
//
Operating
review
//
Ingredients
//
Case
study
Five
years
is
a
short
time
when
you
are
building
up
a
business,
but
that
is
how
long
it
has
taken
to
grow
our
Yeast
and
Bakery
Ingredients
business
from
a
small
UK
joint
venture
into
the
worldwide
number
two
in
the
market.
AB
Mauri
was
formed
in
November
2004
as
a
new
operating
division.
It
was
created
by
bringing
together
the
yeast
and
bakery
ingredients
businesses
which
were
acquired
from
Burns
Philp,
our
existing
bakery
ingredient
operations,
and
other
more
recent
acquisitions.
Consistent
commitment
and
investment
since,
has
seen
AB
Mauri
consolidate
its
European
operations
and
construct
new
factories
in
areas
of
strong
market
growth
such
as
China.
AB
Mauri
has
its
global
headquarters
in
the
UK
and
is
organised
into
six
geographic
regions.
It
operates
from
more
than
48
locations
in
27
countries
and
from
its
humble
beginnings
now
has
a
total
sales
turnover
of
over
one
billion
US
dollars.
As
well
as
its
regional
structure,
there
are
two
centrally
managed
Technology
Groups.
The
Global
Technology
Group,
based
in
Sydney,
Australia
covers
all
aspects
of
yeast
manufacturing
and
operations
including
strain
development,
engineering,
fermentation
technology,
project
and
procurement
management.
The
Bakery
Technology
Group
based
in
the
Netherlands
covers
baking
science,
research
formulation
and
application
skills,
and
a
highly
focused
team
responsible
for
the
management
of
global
accounts
business.
This
team
manages
relationships
with
those
major
international
bakery
and
food
service
groups
whose
geographic
scope
extends
across
several
or
all
of
AB
Mauri’s
regional
businesses.
Today
AB
Mauri
has
impressive
geographic
reach
through
its
international
family
of
yeast
and
bakery
ingredient
businesses.
These
businesses
are
supported
by
outstanding
distribution
networks.
AB
Mauri
is
a
young
company
that
has
come
a
long
way
in
a
very
short
time.
Its
name
may
still
be
new
to
many
people.
However
some
of
the
local
brands
have
great
local
heritage
and
are
well
recognised
and
respected
in
their
markets.
Examples
include
Fleischmann,
Mauri,
Calsa,
Tower,
Cereform,
Serrol,
Maurimix,
Mauripan
and
Fermipan.
For
millions
of
people
around
the
world
AB
Mauri
plays
a
significant
role
in
their
daily
lives
.
.
.
without
them
even
knowing.
Above:
Baking
ingredients
account
for
almost
a
third
of
our
Ingredients
revenues.
EVERYDAY
LIFE
IN
INGREDIENTS
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
23
The
yeast
and
bakery
ingredients
business
of
AB
Mauri
performed
well,
with
good
sales
growth
in
all
geographic
regions.
Particularly
good
progress
was
made
in
yeast
in
South
America
and
in
technical
ingredients
in
the
Americas,
but
with
tough
trading
conditions
experienced
in
India.
Operating
margins
improved
following
price
increases
achieved
early
in
the
year
and
the
benefit
of
capital
investment
in
cost
reduction
projects
at
our
newly
acquired
factory
in
Italy.
Capital
investment
continued
apace
with
further
progress
made
on
the
significant
expansion
of
the
Chinese
yeast
plant
in
Harbin
which
is
due
to
open
in
2010.
Working
closely
with
the
relevant
local
authorities
we
continued
our
programme
to
upgrade
effluent
treatment
plants
in
South
America,
India,
Vietnam,
China
and
the
UK
which
will
improve
the
quality
of
waste
water,
ensuring
compliance
with
ever-tightening
regulatory
standards.
A
major
new
Innovations
Centre
was
opened
in
Bangalore
in
April
to
provide
a
regional
focus
on
Bakery
Ingredients
throughout
south
and
west
Asia.
We
closed
our
small
yeast
facility
in
Ireland
and
transferred
production
to
Hull
in
the
UK.
The
sale
of
the
former
Gilde
Bakery
Ingredients
business
in
Iberia
and
our
manufacturing
plant
in
Portugal
was
completed
in
June
in
accordance
with
the
agreement
reached
with
the
EU
Commission.
ABF
Ingredients
had
a
difficult
year
with
lower
sales
volumes
and
pressure
on
margins
as
some
commodity
prices
fell.
Feed
enzymes
performed
well
with
good
growth
generated
from
geographic
expansion
and
new
products.
The
expansion
of
enzymes
capacity
in
Finland
by
some
30%
was
completed
during
the
year.
This
removes
the
previous
capacity
constraint
allowing
previously
outsourced
production
to
be
brought
in-house
and
provides
much
needed
flexibility
for
further
development
of
this
fast-growing
business.
Construction
of
the
new
yeast
extracts
facility,
adjacent
to
the
Chinese
yeast
plant
in
Harbin,
is
due
to
complete
in
2010.
When
opened
this
will
be
a
low-cost
complement
to
our
existing
facility
in
Hamburg,
Germany
which
is
running
at
full
capacity.
In
the
US,
the
cost
of
key
raw
materials
including
fatty
acids,
rice
and
palm
oil,
fell
from
the
high
levels
experienced
last
year
which,
combined
with
a
better
approach
to
global
sourcing,
resulted
in
an
improvement
in
profitability.
Our
speciality
proteins
business
has
focused
on
whey
protein
production
at
Juda,
Wisconsin,
and
we
closed
the
loss-making
Norfolk,
Nebraska
milk
protein
facility.
To
minimise
the
cost
base
and
maximise
sales
and
management
efficiencies
we
have
merged
the
whey
protein
business
with
our
speciality
extruded
ingredients
business
based
in
Woodland,
California.
George
Weston
Chief
Executive
Directors’
report
//
Business
review
//
Operating
review
//
Ingredients
We
have
consistently
developed
the
group
through
investment
and
this
year
it
enabled
the
delivery
of
good
results
in
diffi
cult
economic
times.
The
pace
of
development
activity
has
increased
and
all
our
businesses
are
well
equipped
to
deliver
future
growth
INGREDIENTS
Revenue
£989m
(2008,
£824m)
Adjusted
operating
profit
£88m
(2008,
£78m)
Revenue
and
operating
profit
increased
by
20%
and
13%
respectively,
largely
driven
by
the
benefit
of
sterling
weakness
against
the
US
dollar
and
euro.
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
24
John
Bason
Finance
Director
Directors’
report
//
Business
review
//
Financial
review
Financial
review
Group
performance
Group
revenue
increased
by
12%
to
£9.3bn
with
substantial
growth
in
every
business
segment.
The
food
businesses
benefited
from
the
weakness
of
sterling,
the
ow-through
of
price
increases
from
last
year,
acquisitions
and
some
volume
growth.
There
was
continued
strong
trading
from
Primark.
At
constant
currency,
and
excluding
the
impact
of
acquisitions
and
disposals,
revenue
increased
by
7%.
Revenue
from
the
US
packaged
oils
business
that
was
contributed
to
the
Stratas
joint
venture
has
been
included
in
disposed
businesses.
Since
the
disposal,
the
group’s
interest
in
the
joint
venture
has
been
equity
accounted
with
the
result
that
sales
revenues
are
not
consolidated.
Adjusted
operating
profit
increased
by
8%
to
£720m.
At
constant
currency,
and
excluding
the
benefit
of
acquisitions,
it
increased
by
3%
but
this
ignores
the
impact
that
sterling
weakness
had
on
import
costs
which,
for
a
number
of
businesses,
and
Primark
in
particular,
was
a
significant
factor
in
second
half
margin
compression.
Under
international
accounting
standards,
inventory
acquired
with
a
business
is
stated
at
its
fair
value
and
typically
profit
is
reduced
when
the
sale
subsequently
takes
place.
For
the
Azucarera
acquisition
this
resulted
in
an
increase
of
£12m
in
inventory,
from
book
value
to
fair
value.
This
non-cash
amount,
which
reduced
profit
in
the
year,
has
been
added
back
in
calculating
adjusted
operating
profit.
Other
items
excluded
in
calculating
adjusted
operating
profit
are
profits
less
losses
on
the
sale
of
property,
plant
and
equipment,
amortisation
of
non-operating
intangibles
and
any
exceptional
items.
A
net
loss
of
£65m
arose
on
the
sale
and
closure
of
businesses,
in
line
with
that
reported
at
the
half
year.
This
primarily
related
to
the
contribution
of
the
US
packaged
oils
business
to
the
Stratas
joint
venture,
£37m
of
which
related
to
the
write-off
of
property,
plant
and
equipment
at
the
two
redundant
ACH
factories.
Finance
expense
less
finance
income
of
£78m
compared
with
a
charge
of
£53m
last
year.
This
year-on-year
increase
resulted
from
the
continued
significant
level
of
capital
investment
in
organic
growth
opportunities,
the
acquisition
of
new
businesses
and
the
impact
of
the
US
private
placement
which
is
currently
a
more
expensive
source
of
finance
than
bank
debt
at
prevailing
interest
rates.
Other
financial
income
of
£13m
was
primarily
net
income
from
retirement
benefit
schemes,
being
the
expected
return
on
assets
in
the
group’s
schemes
less
the
charge
on
pension
scheme
liabilities.
This
compared
with
a
net
income
of
£21m
last
year.
Profit
before
tax
fell
from
£527m
to
£495m.
This
included
the
impact
of
the
loss
on
disposal
of
businesses
this
year
and
an
£11m
reduction,
year-on-year,
in
profits
less
losses
on
the
sale
of
property,
plant
and
equipment.
Last
year’s
profit
before
tax
included
a
charge
of
£46m
for
exceptionals.
Adjusted
to
exclude
these
items,
underlying
profit
before
tax
increased
by
4%
to
£655m.
Taxation
The
tax
charge
of
£112m
included
an
underlying
charge
of
£166m,
at
an
effective
tax
rate
of
25.3%
on
the
adjusted
profit
before
tax.
This
was
higher
than
last
year’s
24.4%
as
a
result
of
the
mix
of
profits
in
different
tax
jurisdictions
and
last
year’s
one-time
benefit
from
tax
credits
related
to
our
investment
in
Zambia.
The
overall
tax
charge
for
the
year
benefited
from
a
£25m
(2008
£21m)
credit
for
tax
relief
on
the
amortisation
of
non-operating
intangible
assets
and
goodwill
arising
from
asset
acquisitions.
A
tax
credit
of
£25m
arose
on
the
loss
on
the
sale
of
businesses
and
fixed
assets
and
the
tax
on
the
fair
value
inventory
adjustment
discussed
above
amounted
to
£4m.
Earnings
and
dividends
Earnings
attributable
to
equity
shareholders
were
£359m,
£2m
higher
than
last
year,
and
the
weighted
average
number
of
shares
in
issue
used
to
calculate
earnings
per
share
fell
from
790
million
to
789
million.
Earnings
per
ordinary
share
were
1%
ahead
of
last
year
at
45.5p.
Adjusted
earnings
per
share
which
provides
a
more
consistent
measure
of
performance
increased
by
5%
from
54.9p
to
57.7p.
The
interim
dividend
was
increased
by
2%
to
6.9p
and
a
final
dividend
has
been
proposed
at
14.1p
which
represents
an
overall
increase
of
4%
for
the
year.
In
accordance
with
IFRS,
no
accrual
has
been
made
in
these
accounts
for
the
proposed
dividend
which
is
expected
to
cost
£111m
and
will
be
charged
next
year.
The
dividend
is
covered
2.75
times
on
an
adjusted
basis.
Directors’
report
//
Business
review
//
Financial
review
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
25
Balance
sheet
Non-current
assets
increased
by
£647m
to
£6,018m.
Property,
plant
and
equipment
of
£3,519m
increased
by
£409m
driven
by
acquisitions,
which
added
£218m,
and
capital
expenditure
net
of
depreciation
of
£223m.
Working
capital
increased
by
£65m
primarily
due
to
higher
inventory
values
as
a
result
of
the
Azucarera
acquisition.
Excluding
the
impact
of
acquisitions,
working
capital
fell
refl
ecting
lower
commodity
costs
and
an
increased
focus
on
working
capital
management.
Net
borrowings
at
the
year
end
were
£208m
higher
than
last
year
at
£999m.
A
currency
gain
of
£243m
arose
on
the
translation
into
sterling
of
the
group’s
foreign
currency
denominated
net
assets.
This
resulted
from
the
fact
that
sterling
was
weaker
against
all
major
currencies
at
the
end
of
this
year
than
at
the
end
of
the
previous
year.
The
group’s
net
assets
increased
by
£232m
to
£5,076m.
Return
on
capital
employed
for
the
group
fell
from
16.6%
to
15.4%.
This
is
largely
a
consequence
of
the
substantial
level
of
investment
made
this
year
in
a
number
of
long-term
capital
projects
which
have
yet
to
yield
a
return.
Return
on
capital
employed
is
defined
as
adjusted
operating
profit
expressed
as
a
percentage
of
average
capital
employed
for
the
year.
Cash
ow
Net
cash
flow
from
operating
activities
was
£833m
compared
with
£553m
last
year.
This
substantial
increase
mainly
reflects
a
strong
working
capital
performance
with
an
inflow
of
£117m
compared
with
an
outflow
of
£110m
last
year,
despite
the
considerable
growth
in
the
business.
We
continued
to
invest
significantly
in
the
future
growth
of
the
group
with
a
net
£832m
spent
on
property,
plant
and
equipment,
intangibles
and
acquisitions
net
of
disposals
during
the
year.
Capital
expenditure
amounted
to
£545m
of
which
£159m
was
spent
on
the
acquisition
and
fit-out
of
Primark
stores.
Elsewhere
expenditure
was
incurred
on
yeast
and
yeast
extract
production
in
China,
the
expansion
of
our
sugar
interests
in
southern
Africa,
bioethanol
production
in
the
UK
and
enzymes
capacity
in
Finland.
Compensation
received
for
sugar
quota
renounced
last
year
amounted
to
£101m.
We
invested
£391m
on
acquisitions,
principally
on
the
leading
sugar
producer
in
Iberia
but
also
on
an
animal
feed
mill
in
the
UK
and
a
sugar
cane
farm
in
Zambia.
£145m
was
received
from
business
disposals,
primarily
the
Polish
sugar
business,
the
Pongola
mill
in
South
Africa
and
the
former
Gilde
Bakery
Ingredients
business
in
Iberia
which
was
sold,
together
with
our
manufacturing
plant
in
Portugal,
in
accordance
with
an
agreement
reached
with
the
EU
Commission.
Financing
Cash
and
cash
equivalents
totalled
£383m
at
the
year
end.
These
were
managed
during
the
year
by
a
central
treasury
department,
operating
under
strictly
controlled
guidelines,
which
also
arranges
term
bank
finance
for
acquisitions
and
to
meet
short-term
working
capital
requirements,
particularly
for
the
sugar
beet
and
wheat
harvests.
At
the
year
end
the
group
had
total
committed
borrowing
facilities
amounting
to
£1,847m
of
which
£1,007m
was
drawn
down.
£1,073m
of
these
facilities
expire
in
October
2011,
with
the
remainder
maturing
from
2012
to
2021.
The
group
also
had
access,
at
the
year
end,
to
£841m
of
uncommitted
credit
lines
under
which
£358m
was
drawn.
The
significant
increase
in
headroom
on
these
facilities
since
last
year
is
the
consequence
of
the
£320m
bank
facility
which
was
secured
at
the
beginning
of
the
year,
and
the
US$610m
raised
in
March
through
a
private
placement
in
the
US
which
strengthened
the
group
balance
sheet
and
secured
long-term
non-bank
financing.
Pensions
Pensions
are
accounted
for
in
accordance
with
IAS
19
Employee
benefits.
The
total
pension
expense
for
the
year
was
£69m
compared
with
£62m
last
year.
On
an
IAS
19
basis,
liabilities
in
the
group’s
defined
benefit
pension
schemes
now
exceed
employee
benefit
assets
by
£106m
compared
with
last
year’s
surplus
of
£61m.
This
turnaround
is
the
consequence
of
a
fall
in
asset
values
as
equity
and
bond
markets
have
responded
to
the
worldwide
recession
together
with
inflationary
increases
in
scheme
liabilities.
The
triennial
actuarial
valuation
of
the
UK
Pension
Scheme
undertaken
in
2008
revealed
a
funding
deficit
of
£163m
which,
by
agreement
with
the
Trustees,
the
Company
will
eliminate
with
five
deficit
payments
of
£30m
each,
the
first
of
which
was
made
in
March
2009.
Total
contributions
to
defined
benefit
plans
in
the
year
amounted
to
£75m
(2008
£54m).
For
defined
contribution
schemes
the
charge
for
the
year
is
equal
to
the
contributions
made
which
amounted
to
£33m
(2008
£26m).
Post
balance
sheet
events
On
14
September
2009,
Illovo
concluded
a
rand
3bn
rights
issue
to
fund
further
expansion
projects
in
Africa.
The
issue
was
99.4%
subscribed.
ABF
took
up
its
51%
entitlement
at
a
cost
of
£126m.
The
rights
issue
reduces
the
group’s
consolidated
net
debt
by
£119m
after
the
year
end.
On
2
November
2009,
Twinings
announced
that
it
was
entering
a
period
of
consultation
with
employees
over
a
proposed
reorganisation
of
its
tea
manufacturing
operations.
The
charge
for
this
reorganisation
is
expected
to
be
£19m
and
will
be
included
in
the
income
statement
for
the
financial
year
2009/10.
John
Bason
Finance
Director
We
continued
to
invest
significantly
in
the
future
of
the
group
with
expenditure
on
capital
and
acquisitions,
net
of
disposal
proceeds,
of
£832m.
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
26
Directors’
report
//
Governance
//
Corporate
responsibility
Corporate
responsibility
Our
approach
to
corporate
responsibility
is
based
on
the
group’s
core
values
taking
care
of
our
people,
managing
our
environmental
impacts,
being
good
neighbours
and
fostering
ethical
business
relationships.
Because
the
organisational
structure
of
the
group
is
highly
decentralised,
responsibility
for
managing
environmental,
social
and
ethical
issues
day-to-day
rests
with
the
management
of
each
operating
business.
As
a
minimum,
however,
all
businesses
must
comply
with
our
Business
Principles,
which
can
be
found
online
at
www.abf.co.uk.
These
Business
Principles
include
the
group’s
Health
and
Safety
and
Environmental
Policies
for
which
the
Group
Human
Resources
Director
has
overall
responsibility.
He
reports
to
the
Chief
Executive
and
is
supported
directly
by
a
Group
Safety
&
Environment
Manager
who
also
works
with
the
Director
of
Legal
Services
on
these
principles
and
compliance
issues.
Our
businesses
devise
procedures
appropriate
to
and
compliant
with
local
laws,
cultures
and
operating
conditions.
Every
business
has
an
accountable
board
director
and
a
senior
manager
who
are
responsible
for
safety
and
environmental
matters.
The
board
reviews
our
safety
and
environmental
performance
annually
as
well
as
reviewing
the
outcome
of
the
external
assurance
processes.
The
Group
Human
Resources
Director
receives
a
monthly
briefing
and
the
Chief
Executive
receives
briefings
quarterly,
based
on
performance
monitoring
data.
The
board
assesses
the
sophistication
of
each
business’
risk
management
and
safety
cultures,
considers
levels
of
resources
and
agrees
actions
for
the
coming
year.
Key
facts
The
following
key
performance
indicators
provide
both
a
like-for-like
comparison
with
last
year’s
data
among
the
established
operations
of
the
group
and
the
impact
of
the
new
acquisition,
Azucarera
Ebro.
2009
2009
excluding
including
Azucarera
Azucarera
Ebro
Ebro
2008
Work-related
deaths
9
9
4
Reportable
Injury
Rate
0.67%
0.81%
0.77%
(%
employees
having
a
reportable
injury)
Energy
Consumption
(GWh)
25,438
26,529
25,412
CO
2
emissions
(million
tonnes)
3.60
3.86
3.59
Water
usage
(million
tonnes)
138.9
139.3
155.9
Waste
production
(thousand
tonnes)
437
464
355
We
have
always
had
a
clear
policy
of
meeting
the
relevant
legal
safety
standards
in
every
country
in
which
we
operate
and
we
use
the
national
standards
as
a
minimum.
During
2009
we
invested
over
£22m
in
upgrading
plant
and
equipment
to
improve
our
safety.
The
businesses
use
risk
control
procedures
and
training
to
prevent
injury
at
work
and
27
sites
have
been
independently
certified
as
meeting
OHSAS
18001
safety
management
systems
or
equivalent.
We
very
much
regret
that
there
were
nine
deaths
at
work
during
the
year.
Three
of
these
fatalities
were
contractors
working
on
major
factory
expansion
projects
in
AB
Mauri,
Bo
Tian
in
northern
China
and
Illovo
Sugar
in
Africa.
We
have
placed
great
emphasis
on
the
management
of
contractors
and
on
construction
safety
standards.
The
six
employee
deaths
occurred
at
AB
Agri
and
Bo
Tian
in
northern
China,
ACH
in
America
and
three
in
Illovo
Sugar,
Africa.
Each
had
a
different
immediate
cause.
We
carried
out
a
detailed
investigation
into
all
of
the
accidents,
put
stronger
controls
in
place
to
prevent
a
recurrence
and
communicated
these
across
the
Company.
We
are
pleased
to
report
that
in
2009,
114
factories
and
129
Primark
stores
achieved
a
year’s
operation
without
any
reportable
injuries
and
since
2006
our
overall
rate
of
reportable
injuries
has
reduced
by
65%.
Despite
this
good
progress,
we
fully
recognise
that
further
improvement
is
achievable.
For
all
our
manufacturing
and
retail
operations,
the
working
environment
and
physical
safety
standards
such
as
machinery
guarding,
electrical
safety
and
control
of
hazardous
substances,
are
carefully
monitored
and
upgraded
using
guidance
published
by
national
regulatory
authorities
as
a
benchmark.
We
place
special
focus
on
construction
safety
and
reducing
the
risks
from
moving
vehicles.
Our
businesses
have
continued
to
develop
the
breadth
and
depth
of
their
risk-management
systems,
which
include
clear
objectives
and
personal
safety
improvement
targets,
effective
physical
controls
and
management
procedures
and
routine
performance
monitoring.
The
Group
Human
Resources
Director
together
with
the
Group
Safety
&
Environment
Manager
reviewed
the
safety
improvement
action
plans
of
the
operating
companies
to
ensure
that
they
address
the
principal
risks
and
have
agreed
their
safety
priorities
for
the
coming
year.
We
place
a
high
value
on
the
efficient
use
of
natural
resources,
the
minimisation
of
impact
from
our
operations
on
the
communities
and
physical
environments
in
which
we
operate
and
on
legal
compliance.
The
principal
environmental
impacts
from
our
operations
are
energy
usage
and
the
resultant
emissions
of
carbon
dioxide,
the
abstraction
of
water,
the
treatment
and
disposal
of
waste
water
and
the
generation
and
disposal
of
waste.
During
2009
we
invested
over
£47m
in
upgrading
our
environmental
controls.
Thirty-two
of
our
sites
have
been
externally
certified
to
ISO
14001
or
equivalent
for
their
environmental
risk
management
systems.
Efficient
use
of
energy
is
central
to
the
way
we
work
as
it
not
only
reduces
our
use
of
natural
resources
it
reduces
our
operating
costs.
In
2009
our
established
factories
used
a
total
of
25.4
Terawatt
hours
of
energy,
an
almost
identical
amount
as
in
2008
despite
the
growth
of
the
business.
Our
sugar
factories,
which
account
for
85%
of
the
Company’s
total
energy
usage,
reduced
their
energy
consumption
by
3%.
As
a
result
of
the
energy
usage,
we
emitted,
or
caused
to
be
emitted,
3.6
million
tonnes
of
carbon
dioxide
in
our
established
factories,
a
similar
amount
to
2008.
We
are
pleased
to
report
that
half
of
our
energy
comes
from
renewable
energy
sources,
mainly
fibre
(bagasse)
from
the
processing
of
sugar
cane,
which
prevents
us
having
to
burn
fossil
fuels.
We
also
target
the
efficient
use
of
water.
The
two
major
water
users
are
the
sugar
and
yeast
processes.
Compared
with
last
year
our
established
factories
have
been
able
to
reduce
the
amount
of
water
entering
our
factories
by
17
million
tonnes,
although
water
usage
is
affected
by
climatic
conditions
and
rainfall
patterns
and
so
cannot
be
guaranteed
each
year.
We
aim
to
minimise
waste
and
its
associated
financial
penalties
and
to
maximise
operational
efficiency.
The
waste
that
we
generate
is
properly
handled
and
disposed
of.
We
seek
opportunities
to
use
the
intrinsic
value
in
the
waste
and
to
recycle.
In
2009
our
UK
operations
recycled
50,000
tonnes
of
packaging,
mostly
paper
and
plastic.
Our
approach
to
corporate
responsibility
is
based
on
the
group’s
core
values.
Across
the
group
we
use
our
knowledge
and
expertise
to
help
tackle
climate
change.
Measuring
carbon
footprints
the
impact
of
human
activities
on
the
environment
in
terms
of
units
of
carbon
dioxide
and
other
greenhouse
gases
is
a
particular
focus.
It
is
a
powerful
tool
enabling
farmers
and
producers,
retailers
and
consumers
to
make
more
informed
choices.
AB
Agri
is
a
pioneer
in
the
development
of
sustainable
agricultural
practices.
It
has
developed
the
world’s
first
carbon
footprinting
model
for
dairy
farms.
This
enables
farmers
to
measure
the
environmental
impact
of
individual
feeds
and
rations
on
their
dairy
herds
which
are
responsible
throughout
the
UK
for
producing
about
10%
of
all
greenhouse
gases
(methane,
nitrous
oxide
and
carbon
dioxide).
This
model
was
developed
using
the
Carbon
Trust’s
PAS
2050
methodology
for
measuring
embedded
greenhouse
gas
emissions
and
can
be
applied
to
other
livestock
sectors
such
as
meat,
poultry
and
egg
production.
Major
retailers
are
already
embracing
the
development:
for
example,
Sainsbury’s
recorded
a
reduction
of
5,000
tonnes
of
CO
2
over
12
months
during
a
trial
involving
325
farms.
British
Sugar
and
our
Silver
Spoon
brand
were
pilot
partners
with
the
Carbon
Trust
in
developing
the
PAS
2050
standard.
Silver
Spoon
used
it
to
analyse
the
carbon
footprint
of
its
homegrown
granulated
sugar,
completing
a
detailed
assessment
at
each
stage
of
production
from
growing
and
transporting
the
sugar
beet
to
refining
and
delivering
to
store.
Now,
anyone
buying
a
1kg
bag
of
Silver
Spoon
granulated
sugar
knows
that
it
generated
0.5kg
of
carbon
a
significantly
reduced
footprint
thanks
to
the
company’s
many
years
of
focusing
on
energy
efficiency.
Kingsmill
is
the
first
bread
manufacturer
in
the
UK
licensed
to
use
the
Carbon
Trust’s
carbon
reduction
label.
It
is
now
carried
on
Kingsmill’s
three
best-selling
loaves,
showing
the
carbon
footprint
of
each
and
demonstrating
the
brand’s
commitment
to
reducing
these
over
the
next
two
years.
Meanwhile,
the
carbon
footprints
of
our
TOPSOIL
and
LimeX
products,
used
as
soil
improvers
in
agriculture
and
by
the
landscape
and
amenity
industries,
are
also
now
certified
according
to
PAS
2050.
TOPSOIL
produces
9kg
of
CO
2
per
tonne
of
product
and
LimeX
2kg
per
tonne.
Directors’
report
//
Governance
//
Corporate
responsibility
//
Case
study
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
27
A
pioneer
in
carbon
footprinting
0.5kg
The
amount
of
carbon
generated
in
the
production
of
1kg
of
Silver
Spoon
granulated
sugar
a
comparatively
small
footprint
A
world
FIRST
AB
Agri
has
developed
the
first
carbon
footprinting
model
for
dairy
farms
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
28
Directors’
report
//
Governance
//
Board
of
directors
George
G
Weston
Executive
director
(age
45)
George
Weston
is
Chief
Executive.
He
is
a
graduate
of
New
College
Oxford
and
has
an
MBA
from
Harvard
Business
School.
In
his
former
roles
as
Managing
Director
of
Westmill
Foods,
Allied
Bakeries
and
George
Weston
Foods
Ltd
(Australia)
he
has
been
a
member
of
the
ABF
board
since
1999.
He
took
up
his
current
appointment
in
April
2005.
He
is
also
a
non-executive
director
of
Wittington
Investments
Limited
and
a
trustee
of
the
Garfield
Weston
Foundation.
Charles
Sinclair
Non-executive
director
(age
61)
Appointed
a
director
on
1
October
2008
and
Chairman
on
21
April
2009,
he
is
a
non-executive
director
of
SVG
Capital
plc.
He
was
chief
executive
of
Daily
Mail
and
General
Trust
plc
from
1989
until
he
retired
from
that
role
and
the
board
on
30
September
2008.
John
G
Bason
Executive
director
(age
52)
Appointed
Finance
Director
in
May
1999,
he
was
previously
the
finance
director
of
Bunzl
plc
and
is
a
member
of
the
Institute
of
Chartered
Accountants
in
England
and
Wales.
Peter
Smith
Independent
non-executive
director
(age
63)
Appointed
a
director
on
28
February
2007,
he
is
chairman
of
Savills
plc
and
Templeton
Emerging
Markets
Investment
Trust
plc,
and
a
non-executive
director
of
NM
Rothschild
&
Sons
Limited
and
The
Equitable
Life
Assurance
Society.
Formerly,
he
was
senior
partner
at
PricewaterhouseCoopers
(PwC),
served
for
two
years
as
chairman
of
Coopers
&
Lybrand
International
and
as
a
member
of
the
global
leadership
team
of
PwC
and
was
chairman
of
RAC
plc.
Directors’
report
//
Governance
//
Board
of
directors
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
29
WG
Galen
Weston
OC
Non-executive
director
(age
69)
A
director
since
1964,
he
is
chairman
and
president
of
George
Weston
Limited,
Canada.
He
is
also
chairman
of
Selfridges
&
Co.
Limited,
a
non-executive
director
of
Wittington
Investments
Limited
and
a
trustee
of
the
Garfield
Weston
Foundation.
Lord
Jay
of
Ewelme
GCMG
Independent
non-executive
director
(age
63)
Appointed
a
director
on
1
November
2006,
he
was
British
Ambassador
to
France
from
1996
to
2001
and
Permanent
Under
Secretary
at
the
Foreign
&
Commonwealth
Office
from
2002
to
2006.
He
is
a
non-executive
director
of
Candover
Investments
plc,
Valeo,
the
French-based
automobile
parts
company
and
of
Credit
Agricole,
the
French-based
international
banking
group.
He
has
been
an
independent
member
of
the
House
of
Lords
since
2006
and
is
Chairman
of
the
House
of
Lords
Appointments
Commission.
Timothy
Clarke
Senior
independent
non-executive
director
(age
52)
Appointed
a
director
on
3
November
2004,
he
was
chief
executive
of
Mitchells
&
Butlers
plc,
following
its
demerger
from
Six
Continents
PLC,
until
May
2009.
He
joined
Bass
PLC
in
1990
having
previously
been
a
partner
of
Panmure
Gordon
&
Co.
Javier
Ferrán
Independent
non-executive
director
(age
53)
Appointed
a
director
on
1
November
2006,
he
spent
his
earlier
career
with
Bacardi
Group,
his
last
position
being
president
and
chief
executive
officer.
He
is
currently
a
partner
at
Lion
Capital
LLP,
a
London-based
private
equity
firm.
Corporate
governance
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
30
Directors’
report
//
Governance
//
Corporate
governance
The
board
remains
committed
to
the
principles
of
good
corporate
governance
and
to
maintaining
high
standards
of
business
ethics
and
professionalism
across
the
group,
which
it
believes
are
vital
to
the
Company’s
business
integrity
and
successful
long-term
performance.
The
board
recognises
that
corporate
governance
is
not
an
end
in
itself
but
an
important
means
to
an
end.
The
Listing
Rules
of
the
Financial
Services
Authority
require
UK
listed
companies
to
report
on
the
manner
in
which
they
apply
the
Combined
Code
on
Corporate
Governance
(the
‘Combined
Code’)
which
is
publicly
available
at
www.frc.org.uk
The
board
recognises
that
the
Combined
Code
represents
best
practice
and
this
report,
together
with
the
Remuneration
report,
sets
out
how
the
Company
applies
the
principles
of
this
Combined
Code
which
deal
with
directors,
directors’
remuneration,
relations
with,
and
accountability
to,
shareholders,
and
the
audit
of
the
Company.
The
board
will
also
continue
to
keep
developments
in
the
Combined
Code,
including
the
current
consultation
being
conducted
by
the
Financial
Reporting
Council,
under
review
and
will
in
due
course
consider
how
best
to
address
any
such
developments.
The
board
believes
that
any
system
which
is
adopted
must
also
reflect
necessary
standards
of
governance
for
the
Company
and
its
corporate
social
responsibilities
and
believes
that
the
systems
in
place
meet
those
requirements.
Statement
of
compliance
The
board
considers
that
the
Company
has
complied
fully
with
the
provisions
set
out
in
Section
1
of
the
Combined
Code
throughout
the
year,
with
the
following
exceptions:
Combined
Code
Provisions
Status
Explanation
A.4.4.
The
terms
and
conditions
of
appointment
of
non-executive
directors
should
be
made
available
for
inspection
Galen
Weston
has
not
entered
into
a
formal
letter
of
appointment.
This
is
due
to
his
relationship
with
the
Company’s
ultimate
holding
company,
Wittington
Investments
Limited
of
which
he
is
a
director
and
shareholder.
Galen
Weston
receives
no
fees
for
performing
his
role
as
a
non-executive
director
and
Associated
British
Foods
plc
does
not
reimburse
him
for
any
expenses
incurred
by
him
in
that
role.
In
accordance
with
the
Combined
Code,
he
is
subject
to
annual
re-election.
B.2.1
The
Chairman
should
not
chair
the
Remuneration
committee
Charles
Sinclair
is
both
Chairman
and
chairman
of
the
Remuneration
committee.
The
board
of
Associated
British
Foods
plc
does
not
accept
this
recommendation
as
it
considers
that
Charles
Sinclair,
due
to
his
experience,
is
best
suited
to
chair
this
committee.
The
Combined
Code
now
recognises
that
the
Chairman
can
be
a
member
of
the
Remuneration
committee.
No
director
has
any
involvement
in
the
determination
of
his
own
remuneration.
Directors’
report
//
Governance
//
Corporate
governance
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
31
The
board
of
directors
Role
and
responsibilities
All
members
of
the
board
take
collective
responsibility
for
the
overall
management
and
performance
of
the
Company.
The
board
met
formally
nine
times
during
the
year.
The
individual
attendance
by
directors
is
detailed
on
page
32.
Whilst
the
board
has
delegated
day-to-day
management
of
the
Company
to
the
Chief
Executive,
there
is
a
formal
schedule
of
matters
reserved
to
the
board
for
decision,
through
which
the
board
oversees
control
of
the
Company’s
affairs.
This
schedule
of
matters
reserved
includes
the
approval
of:
annual
and
interim
results
and
interim
management
statements;
the
Company’s
strategic
and
operating
plans;
the
annual
budget;
appointments
to
the
board
and
as
Company
Secretary;
treasury
policies;
dividend
recommendation;
the
issue
of
new
shares;
amendments
to
the
Company’s
pension
scheme;
larger
capital
expenditure,
acquisitions,
disposals
and
investment
proposals;
and
the
overall
system
of
internal
control
and
risk
management.
Certain
specific
responsibilities
are
delegated
to
the
board
committees,
notably
the
Audit,
Remuneration
and
Nomination
committees,
which
operate
within
clearly
defined
terms
of
reference,
reporting
regularly
to
the
board.
Composition
The
board
currently
comprises
the
Chairman
Charles
Sinclair,
the
Chief
Executive
George
Weston,
the
Finance
Director
John
Bason
and
four
non-executive
directors
who
are
independent
of
management
and
have
no
relationships
which
would
materially
interfere
with
the
exercise
of
their
independent
judgement.
The
board
also
includes
Galen
Weston,
a
non-executive
director,
who
is
not
regarded
as
independent
in
view
of
his
relationship
with
Wittington
Investments
Limited.
Following
the
retirement
of
Martin
Adamson
in
April
2009,
Charles
Sinclair
was
appointed
Chairman.
On
his
appointment
as
Chairman,
Charles
Sinclair
met
the
independence
criteria
set
out
in
the
Combined
Code.
The
board
considers
that
the
non-executive
directors
provide
a
solid
foundation
for
good
corporate
governance
for
the
group
and
ensure
that
no
individual
or
group
dominates
the
board’s
decision-making.
Collectively,
the
non-executive
directors
bring
a
wide
range
of
international
experience
and
expertise
to
the
board.
They
each
occupy
or
have
occupied
senior
positions
in
industry
or
public
life
and
consequently
contribute
significantly
to
board
decision-making.
Details
of
the
full
board
are
set
out
on
pages
28
and
29.
Chairman
and
Chief
Executive
The
roles
of
the
Chairman
and
the
Chief
Executive
are
separately
held
and
the
division
of
their
responsibilities
is
clearly
established,
set
out
in
writing,
and
agreed
by
the
board.
The
Chairman,
Charles
Sinclair,
is
responsible
for
the
running
and
leadership
of
the
board.
The
Chief
Executive,
George
Weston,
is
responsible
for
leading
and
managing
the
business
within
the
authorities
delegated
by
the
board.
Senior
independent
director
Tim
Clarke
is
the
recognised
senior
independent
director.
Re-election
Under
the
Articles,
both
now
and
as
they
are
proposed
to
be
amended
at
the
forthcoming
annual
general
meeting,
all
directors
seek
election
at
their
first
annual
general
meeting
following
appointment.
The
Articles
also
require
all
directors
who
held
office
at
the
time
of
the
two
preceding
annual
general
meetings,
and
in
any
event
not
less
than
one
third
of
the
directors,
to
submit
themselves
for
re-election.
In
accordance
with
the
Combined
Code,
all
non-executive
directors
who
have
served
for
more
than
nine
years
must
also
submit
themselves
for
re-election
on
an
annual
basis.
Accordingly,
Galen
Weston,
Lord
Jay,
Javier
Ferrán
and
Tim
Clarke
will
be
required
to
seek
re-election
at
the
forthcoming
annual
general
meeting.
Induction
and
continuing
professional
development
On
joining
the
board,
directors
are
given
background
documents
describing
the
Company
and
its
activities
and
are
provided
with
an
appropriate
induction
programme.
The
Company
offers
major
shareholders
the
opportunity
to
meet
new
non-executive
directors.
Site
visits
were
arranged
during
the
year
for
Charles
Sinclair
to
meet
the
senior
management
teams
at
major
business
units.
Ongoing
training
is
provided
as
necessary.
Information
flow
Board
and
committee
papers
are
circulated
to
members
in
advance
of
the
meetings.
The
Company
Secretary
manages
the
provision
of
information
to
the
board
at
other
appropriate
times,
in
consultation
with
the
Chairman
and
Chief
Executive.
In
addition
to
formal
meetings,
the
Chairman
and
Chief
Executive
maintain
regular
contact
with
all
directors.
The
Chairman
also
holds
informal
meetings
with
non-executive
directors,
without
any
of
the
executives
being
present,
to
discuss
any
issues
affecting
the
group.
In
order
to
keep
the
non-executive
directors
informed
of
events
throughout
the
group
between
board
meetings,
regular
management
updates
are
sent
to
each
director.
This
seeks
to
ensure
that
the
non-executive
directors
are
always
kept
fully
informed
of
the
latest
issues
affecting
the
group.
Corporate
governance
continued
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
32
Directors’
report
//
Governance
//
Corporate
governance
Board
committees
Membership
of
the
three
key
committees
was
refreshed
in
April
2009.
Current
membership
of
each
committee
is
detailed
below.
Nomination
committee
Current
members:
Tim
Clarke,
Javier
Ferrán,
Lord
Jay,
Charles
Sinclair,
Peter
Smith.
Chairman:
Charles
Sinclair.
Further
details
of
the
Nomination
committee
can
be
found
on
page
34.
Audit
committee
Current
members:
Tim
Clarke,
Lord
Jay,
Peter
Smith.
Chairman:
Peter
Smith.
Further
details
of
the
Audit
committee
can
be
found
on
page
34.
Remuneration
committee
Current
members:
Tim
Clarke,
Javier
Ferrán,
Lord
Jay,
Charles
Sinclair,
Peter
Smith.
Chairman:
Charles
Sinclair.
Details
of
the
Remuneration
committee
and
its
policies
can
be
found
on
pages
42
to
47.
The
terms
of
reference
of
the
Nomination
committee,
the
Audit
committee
and
the
Remuneration
committee
are
available
on
request
and
from
www.abf.co.uk
Location
of
board
meetings
Board
meetings
occasionally
take
place
at
the
offices
of
the
group’s
businesses.
This
further
enables
non-executive
directors
to
develop
their
knowledge
of
the
group
and
to
consult
with
management
and
other
employees.
Non-executive
directors
may
also
make
additional
visits
to
our
overseas
businesses
through
the
year.
Senior
executives
below
board
level
are
invited,
when
appropriate,
to
attend
board
meetings
and
to
make
presentations
on
the
results
and
strategies
of
their
business
units.
Independent
professional
advice
The
board
has
adopted
a
procedure
whereby
directors
may,
in
order
to
comply
with
their
duties
and
where
they
judge
it
necessary,
take
independent
professional
advice
on
any
matter
at
the
Company’s
expense.
Company
Secretary
Directors
have
direct
access
to
the
advice
and
services
of
the
Company
Secretary
who
is
responsible
for
ensuring
that
board
procedures
are
followed.
Attendance
at
meetings
Directors
are
generally
provided
with
the
papers
for
board
and
committee
meetings
a
week
in
advance.
This
enables
any
director
who
is
unable
to
attend
to
provide
comments
to
the
Chairman,
the
chairman
of
the
relevant
committee
or
the
Company
Secretary,
who
will
then
relay
these
comments
to
the
relevant
meeting.
The
attendance
by
individual
directors
at
board
and
committee
meetings
during
the
year
ended
12
September
2009
was
as
follows:
Nomination
Audit
Remuneration
Full
board
committee
committee
committee
meeting
DIRECTORS
Possible
Actual
Possible
Actual
Possible
Actual
Possible
Actual
Martin
Adamson
(1)
1
1
3
3
5
5
Charles
Sinclair
(2)
1
1
1
1
6
6
9
9
George
Weston
9
9
John
Bason
9
9
Tim
Clarke
1
1
3
2
6
5
9
8
Lord
Jay
1
1
3
3
6
6
9
9
Javier
Ferrán
1
1
6
6
9
9
Peter
Smith
1
1
3
3
6
5
9
8
Galen
Weston
9
3
(1)
Martin
Adamson
retired
as
a
director
and
as
Chairman
on
21
April
2009.
(2)
Charles
Sinclair
was
appointed
as
a
non-executive
director
on
1
October
2008
and
as
Chairman
on
21
April
2009.
Directors’
report
//
Governance
//
Corporate
governance
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
33
Accountability
and
audit
The
board
is
required
by
the
Combined
Code
to
present
a
balanced
and
understandable
assessment
of
the
Company’s
position
and
prospects.
In
relation
to
this
requirement,
reference
is
made
to
the
statement
of
directors’
responsibilities
for
preparing
the
financial
statements
set
out
on
page
52
of
this
annual
report
and
accounts.
The
independent
auditors’
report
on
page
53
includes
a
statement
by
the
auditors
about
their
reporting
responsibilities.
The
board
recognises
that
its
responsibility
to
present
a
balanced
and
understandable
assessment
extends
to
interim
and
other
price-sensitive
public
reports,
reports
to
regulators
and
information
required
to
be
presented
by
law.
Going
concern
The
group’s
business
activities,
together
with
the
factors
likely
to
affect
its
future
development,
performance
and
position
are
set
out
in
the
Business
review
on
pages
2
to
25.
The
financial
position
of
the
group,
its
cash
flows,
liquidity
position
and
borrowing
facilities
are
described
in
the
Financial
review
on
pages
24
and
25.
In
addition,
the
risk
management
review
on
pages
38
to
41
and
note
25
on
pages
90
to
102
provide
details
of
the
group’s
policy
on
managing
its
financial
and
commodity
risks.
The
group
has
considerable
financial
resources,
good
access
to
debt
markets,
a
diverse
range
of
businesses
and
a
wide
geographic
spread.
It
is
therefore
well
placed
to
manage
business
risks
successfully
despite
the
current
economic
uncertainty.
After
making
enquiries
the
directors
have
a
reasonable
expectation
that
the
Company
and
the
group
have
adequate
resources
to
continue
in
operational
existence
for
the
foreseeable
future.
Accordingly,
they
continue
to
adopt
the
going
concern
basis
in
preparing
the
annual
report
and
accounts.
Procedures
to
deal
with
directors’
conflicts
of
interest
The
Company
has
procedures
in
place
to
deal
with
the
situation
where
a
director
has
a
conflict
of
interest.
As
part
of
this
process,
the
members
of
the
board
endeavour
to:
consider
each
conflict
situation
separately
on
its
particular
facts;
consider
the
conflict
situation
in
conjunction
with
the
rest
of
his
duties
under
the
Companies
Act
2006;
keep
records
and
board
minutes
as
to
authorisations
granted
by
directors
and
the
scope
of
any
approvals
given;
and
regularly
review
conflict
authorisation.
The
Company
has
complied
with
these
procedures
during
the
year.
Board
evaluation
During
the
year,
the
board
commissioned
Egon
Zehnder
to
carry
out
an
independent
evaluation
of
its
performance.
The
review
was
conducted
by
way
of
a
detailed
questionnaire
completed
by
each
of
the
directors
and
the
Company
Secretary,
followed
by
one-to-one
interviews
between
each
individual
and
the
external
consultant.
The
review
produced
areas
for
consideration,
in
particular
how
the
board
could
improve
its
deliberations.
The
issues
identified
have
been
discussed
and
changes
to
board
practice
implemented
as
appropriate.
Overall,
the
evaluation
process
in
2009
confirmed
that
the
board
and
its
principal
committees
had
functioned
efficiently
during
the
year
and
that
all
the
directors
continue
to
contribute
effectively
and
with
proper
commitment
to
their
roles,
including
of
time.
Relations
with
shareholders
The
Company
is
committed
to
increasing
shareholder
value
and
communicates
its
achievements
and
prospects
to
its
shareholders
in
an
accurate
and
timely
manner.
Apart
from
the
annual
general
meeting,
the
Company
communicates
with
its
shareholders
by
way
of
the
annual
report
and
accounts
and
the
interim
report.
Significant
matters
relating
to
the
trading
or
development
of
the
business
are
disseminated
to
the
market
by
way
of
Stock
Exchange
announcements
and
by
press
release
and
appear
on
the
Company’s
website.
The
Company
also
holds
meetings
with
its
major
institutional
shareholders
to
discuss
the
Company’s
operations.
The
senior
independent
director
is
available
to
shareholders
in
the
event
that
communication
with
the
Chairman,
Chief
Executive
or
Finance
Director
has
failed
to
resolve
concerns
or
where
such
contact
is
inappropriate.
The
annual
general
meeting
takes
place
in
London.
Formal
notification
is
sent
to
shareholders
approximately
one
month
in
advance
and
in
any
event
at
least
21
days
before
the
meeting.
Other
general
meetings
may
also
be
convened
from
time
to
time
on
at
least
21
days’
notice
or
where
certain
requirements
are
met
including
prior
approval
by
shareholders
by
way
of
special
resolution,
on
14
days’
notice.
The
annual
general
meeting
gives
shareholders
an
opportunity
to
hear
about
the
general
development
of
the
business
and
to
ask
questions
of
the
Chairman
and,
through
him,
the
chairmen
of
the
key
committees
and
other
directors.
The
practice
has
been
for
a
short
film
to
be
shown
at
the
meeting
explaining
a
particular
area
of
the
group’s
business.
Details
of
the
meeting
and
the
resolutions
to
be
proposed
together
with
explanatory
notes
are
set
out
in
the
Notice
of
Meeting
which
is
sent
to
shareholders.
Any
member
attending
the
AGM
has
the
right
to
ask
questions.
The
Company
must
cause
to
be
answered
any
such
question
relating
to
the
business
being
dealt
with
at
the
meeting,
except
in
certain
circumstances
including
if
it
is
undesirable
in
the
interests
of
the
Company
or
the
good
order
of
the
meeting
to
do
so
or
if
to
do
so
would
involve
the
disclosure
of
confidential
information.
Shareholders
attending
the
meeting
are
advised
of
the
number
of
proxy
votes
lodged
for
each
resolution.
All
resolutions
are
voted
on
by
poll
and
the
results
announced
to
the
London
Stock
Exchange
and
posted
on
the
Company’s
website.
Corporate
governance
continued
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
34
Directors’
report
//
Governance
//
Corporate
governance
The
Nomination
committee
reviews
the
structure,
size
and
composition
(including
the
skills,
knowledge
and
experience)
of
the
board
and,
if
appropriate,
makes
recommendations
for
changes
to
the
board.
In
this
respect,
the
committee
has
regard
to
the
results
of
the
annual
board
evaluation.
The
committee
keeps
under
review
the
leadership
needs
of
the
organisation,
both
executive
and
non-executive,
with
a
view
to
ensuring
the
continued
ability
of
the
organisation
to
compete
efficiently
in
the
marketplace.
The
committee
makes
recommendations
regarding
the
membership
of
the
Audit
committee
in
consultation
with
the
Audit
committee
chairman.
Activities
The
Nomination
committee
makes
recommendations
to
the
board
on
succession
for
executive
directors,
the
reappointment
of
any
non-executive
directors
at
the
conclusion
of
their
specified
term
of
office,
any
matter
relating
to
the
continuation
in
office
of
any
director
at
any
time
and
the
appointment
of
any
director
to
executive
or
other
office.
Corporate
website
The
terms
of
reference
of
the
Nomination
committee,
which
set
out
its
role
and
the
authority
delegated
to
it
by
the
board,
are
available
for
inspection
at
the
Company’s
registered
office
and
can
be
viewed
on
the
Company’s
website.
The
formal
letters
of
appointment
of
relevant
non-executive
directors
are
also
available
for
inspection
at
the
Company’s
registered
office.
Report
of
the
Audit
committee
Summary
of
the
role
of
the
Audit
committee
The
Audit
committee
is
responsible
for
maintaining
an
appropriate
relationship
with
the
group’s
external
auditors
and
for
reviewing
the
Company’s
internal
audit
resources,
internal
financial
controls
and
the
audit
process.
It
aids
the
board
in
seeking
to
ensure
that
the
financial
and
non-financial
information
supplied
to
shareholders
presents
a
balanced
assessment
of
the
Company’s
position.
The
Audit
committee
reviews
the
objectivity
and
independence
of
the
external
auditors
and
also
considers
the
scope
of
their
work
and
fees
paid
for
audit
and
non-audit
services.
The
Audit
committee
has
unrestricted
access
to
Company
documents
and
information,
as
well
as
to
employees
of
the
Company
and
the
external
auditors.
Members
of
the
committee
may,
in
pursuit
of
their
duties,
take
independent
professional
advice
on
any
matter
at
the
Company’s
expense.
The
committee
chairman
reports
the
outcome
of
meetings
to
the
board.
Composition
of
the
Audit
committee
The
members
of
the
Audit
committee
who
held
office
during
the
year
and
at
the
date
of
this
report
are:
Peter
Smith
(chairman)
Tim
Clarke
Lord
Jay
Charles
Sinclair
(from
November
2008
until
April
2009)
Report
of
the
Nomination
committee
Composition
of
the
Nomination
committee
The
members
of
the
Nomination
committee
who
held
office
during
the
year
and
at
the
date
of
this
report
are:
Martin
Adamson
(Chairman
until
April
2009)
Charles
Sinclair
(member
from
November
2008
and
Chairman
from
April
2009)
Tim
Clarke
Javier
Ferrán
Lord
Jay
Peter
Smith
Executive
directors
may
be
invited
to
attend
as
appropriate.
The
Nomination
committee
leads
the
process
for
board
appointments
by
making
recommendations
to
the
board.
The
Chairman
does
not
chair
the
Nomination
committee
when
it
is
dealing
with
the
appointment
of
his
successor.
In
these
circumstances
the
committee
is
chaired
by
a
non-executive
director
elected
by
the
remaining
members.
The
committee
met
once
during
the
year.
Duties
The
Nomination
committee
is
responsible
for
identifying
and
nominating,
for
the
approval
of
the
board,
candidates
to
fill
board
vacancies
as
and
when
they
arise.
Before
an
appointment
is
made,
the
committee
evaluates
the
balance
of
skills,
knowledge
and
experience
on
the
board
and,
in
the
light
of
this
evaluation,
prepares
a
description
of
the
role
and
capabilities
required
for
a
particular
appointment.
Candidates
from
a
wide
range
of
backgrounds
are
considered.
The
Nomination
committee
normally
uses
external
advisors
to
facilitate
searches
for
potential
candidates.
The
time
required
from
a
non-executive
director
is
reviewed
annually.
The
annual
board
evaluation
is
used
to
assess
whether
the
non-executive
director
is
spending
sufficient
time
to
fulfil
his
duties.
The
Nomination
committee
gives
full
consideration
to
succession
planning
in
the
course
of
its
work,
taking
into
account
the
challenges
and
opportunities
facing
the
Company
and
what
skills
and
expertise
are
therefore
needed
on
the
board
and
from
senior
management
in
the
future.
Directors’
report
//
Governance
//
Corporate
governance
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
35
During
the
year,
the
Audit
committee
formally
reviewed
draft
interim
and
annual
reports
and
associated
announcements.
These
reviews
considered:
the
accounting
principles,
policies
and
practices
adopted
in
the
group’s
financial
statements
and
proposed
changes
to
them;
the
integrity
of
the
financial
statements,
including
a
review
of
important
accounting
issues,
areas
of
complexity
and
significant
financial
reporting
judgements;
litigation
and
contingent
liabilities
affecting
the
group;
and
potential
tax
contingencies
and
the
group’s
compliance
with
statutory
tax
obligations.
The
Audit
committee
is
required
to
assist
the
board
to
fulfil
its
responsibilities
relating
to
the
adequacy
and
effectiveness
of
the
control
environment,
controls
over
financial
reporting
and
the
group’s
compliance
with
the
Combined
Code.
To
fulfil
these
duties,
the
committee
reviewed:
the
external
auditors’
management
letters
and
audit
highlights
memoranda;
internal
audit
reports
on
key
audit
areas
and
significant
deficiencies
in
the
financial
control
environment;
reports
on
the
systems
of
internal
financial
controls
and
risk
management;
and
reports
on
frauds
perpetrated
against
the
group.
The
Audit
committee
is
responsible
for
the
development,
implementation
and
monitoring
of
policies
and
procedures
on
the
use
of
the
auditor
for
non-audit
services,
in
accordance
with
professional
and
regulatory
requirements.
These
policies
are
kept
under
review
to
meet
the
objective
of
ensuring
that
the
group
benefits
in
a
cost-effective
manner
from
the
cumulative
knowledge
and
experience
of
its
auditor
whilst
also
ensuring
that
the
auditor
maintains
the
necessary
degree
of
independence
and
objectivity.
Consequently,
any
non-audit
work
to
be
undertaken
by
the
auditor
in
excess
of
£300,000
is
required
to
be
authorised
by
the
chairman
of
the
Audit
committee
and
the
Group
Finance
Director
prior
to
its
commencement.
Individual
assignments
less
than
£300,000
are
approved
by
the
Group
Finance
Director.
The
Audit
committee
has
formally
reviewed
the
independence
of
its
auditors.
KPMG
Audit
Plc
have
provided
a
letter
confirming
that
they
believe
they
remain
independent
within
the
meaning
of
the
regulations
on
this
matter
and
their
professional
standards.
Membership
of
the
Audit
committee
is
determined
by
the
board,
on
the
recommendation
of
the
Nomination
committee
and
in
consultation
with
the
committee
chairman,
from
amongst
the
independent,
non-executive
directors
of
the
Company.
Its
terms
of
reference
are
set
by
the
board
and
are
modelled
closely
on
the
provisions
of
the
Combined
Code.
Appointments
are
for
a
period
of
three
years
after
which
they
are
subject
to
annual
review,
extendable
by
additional
three
year
periods
so
long
as
members
continue
to
be
independent.
The
Audit
committee
is
comprised
of
a
minimum
of
three
independent
non-executive
directors
at
any
time.
Two
members
constitute
a
quorum.
The
Audit
committee
structure
requires
the
inclusion
of
one
financially
qualified
member
(as
recognised
by
the
Consultative
Committee
of
Accountancy
Bodies).
Currently
the
committee
chairman
fulfils
this
requirement.
All
committee
members
are
expected
to
be
financially
literate.
The
board
expects
Audit
committee
members
to
have
an
understanding
of
the
following
areas:
the
principles
of,
and
developments
in,
financial
reporting
including
the
applicable
accounting
standards
and
statements
of
recommended
practice;
key
aspects
of
the
Company’s
operations
including
corporate
policies
and
the
group’s
internal
control
environment;
matters
which
may
influence
the
presentation
of
accounts
and
key
figures;
the
principles
of,
and
developments
in,
company
law,
sector-specific
laws
and
other
relevant
corporate
legislation;
the
role
of
internal
and
external
auditing
and
risk
management;
and
the
regulatory
framework
for
the
group’s
businesses.
Meetings
The
Audit
committee
meets
at
least
three
times
each
year
and
has
an
agenda
linked
to
events
in
the
group’s
financial
calendar.
The
committee
invites
the
Group
Finance
Director,
Group
Financial
Controller,
Director
of
Financial
Control
and
senior
representatives
of
the
external
auditors
to
attend
all
of
its
meetings
in
full,
although
it
reserves
the
right
to
request
any
of
these
individuals
to
withdraw.
Other
senior
managers
are
invited
to
present
such
reports
as
are
required
for
the
committee
to
discharge
its
duties.
Overview
of
the
actions
taken
by
the
Audit
committee
to
discharge
its
duties
In
order
to
fulfil
its
terms
of
reference,
the
Audit
committee
receives
and
reviews
presentations
and
reports
from
the
group’s
senior
management,
consulting
as
necessary
with
the
external
auditors.
Corporate
governance
continued
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
36
Directors’
report
//
Governance
//
Corporate
governance
Internal
audit
function
The
Audit
committee
is
required
to
assist
the
board
to
fulfil
its
responsibilities
relating
to
the
adequacy
of
the
resourcing
and
plans
of
internal
audit.
To
fulfil
these
duties,
the
committee
reviewed:
internal
audit’s
terms
of
reference,
reporting
lines
and
access
to
the
committee
and
all
members
of
the
board;
internal
audit’s
plans
and
its
achievement
of
the
planned
activity;
the
results
of
key
audits
and
other
significant
findings,
the
adequacy
of
management’s
response
and
the
timeliness
of
resolution;
statistics
on
staff
numbers,
qualifications
and
experience
and
timeliness
of
reporting;
the
level
and
nature
of
non-audit
activity
performed
by
internal
audit;
and
changes
since
the
last
annual
assessment
in
the
nature
and
extent
of
significant
financial
risks
and
the
group’s
ability
to
respond
to
changes
in
its
business
and
the
external
environment.
The
group’s
‘whistle-blowing’
policy
contains
arrangements
for
the
Company
Secretary
to
receive,
in
confidence,
complaints
on
accounting,
risk
issues,
internal
controls,
auditing
issues
and
related
matters
for
reporting
to
the
Audit
committee
as
appropriate.
The
group’s
anti-fraud
policy
has
been
communicated
to
all
employees
and
states
that
all
employees
have
a
responsibility
for
fraud
prevention
and
detection.
Any
suspicion
of
fraud
should
be
reported
immediately
and
will
be
investigated
vigorously.
The
Audit
committee
holds
private
meetings
with
the
external
auditors
after
each
committee
meeting
to
review
key
issues
within
their
sphere
of
interest
and
responsibility.
The
chairman
of
the
Audit
committee
will
be
present
at
the
annual
general
meeting
to
answer
questions
on
this
report,
matters
within
the
scope
of
the
committee’s
responsibilities
and
any
significant
matters
brought
to
the
committee’s
attention
by
the
external
auditors.
The
full
terms
of
reference
of
the
Audit
committee
are
available
on
the
Company’s
website:
www.abf.co.uk
To
fulfil
its
responsibility
regarding
the
independence
of
the
external
auditors,
the
Audit
committee
reviewed:
changes
in
external
audit
executives
in
the
audit
plan
for
the
current
year;
a
report
from
the
external
auditors
describing
their
arrangements
to
identify,
report
and
manage
any
conflicts
of
interest;
and
the
extent
of
non-audit
services
provided
by
the
external
auditors.
To
assess
the
effectiveness
of
the
external
auditors,
the
committee
reviewed:
the
external
auditors’
fulfilment
of
the
agreed
audit
plan
and
variations
from
it;
and
reports
highlighting
the
major
issues
that
arose
during
the
course
of
the
audit.
To
fulfil
its
responsibility
for
oversight
of
the
external
audit
process,
the
Audit
committee
reviewed:
the
terms,
areas
of
responsibility,
associated
duties
and
scope
of
the
audit
as
set
out
in
the
external
auditors’
engagement
letter
for
the
forthcoming
year;
the
external
auditors’
overall
work
plan
for
the
forthcoming
year;
the
external
auditors’
fee
proposal;
the
major
issues
that
arose
during
the
course
of
the
audit
and
their
resolution;
key
accounting
and
audit
judgements;
the
levels
of
errors
identified
during
the
audit;
and
recommendations
made
by
the
external
auditors
in
their
management
letters
and
the
adequacy
of
management’s
response.
Having
satisfied
itself
that
the
external
auditors
remain
independent,
the
Audit
committee
has
recommended
to
the
board
that
KPMG
Audit
Plc
be
reappointed.
Directors’
report
//
Governance
//
Corporate
governance
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
37
Internal
audit
The
group’s
businesses
employ
internal
auditors
(both
employees
and
resources
provided
by
Ernst
&
Young
where
appropriate)
with
skills
and
experience
relevant
to
the
operation
of
each
business.
All
of
the
internal
audit
activities
are
co-ordinated
centrally
by
the
group’s
Director
of
Financial
Control,
who
is
accountable
to
the
Audit
committee.
All
group
businesses
are
required
to
comply
with
the
group’s
financial
control
framework
that
sets
out
minimum
control
standards.
A
key
function
of
the
group’s
internal
audit
resources
is
to
undertake
audits
to
ensure
compliance
with
the
financial
control
framework
and
make
recommendations
for
improvement
in
controls
where
appropriate.
Internal
audit
also
conducts
regular
reviews
to
ensure
that
risk
management
procedures
and
controls
are
observed.
The
Audit
committee
receives
regular
reports
on
the
results
of
internal
audit’s
work
and
monitors
the
status
of
recommendations
arising.
The
committee
reviews
annually
the
adequacy,
qualifications
and
experience
of
the
group’s
internal
audit
resources
and
the
nature
and
scope
of
internal
audit
activity
in
the
overall
context
of
the
group’s
risk
management
system
set
out
below.
The
Director
of
Financial
Control
meets
with
the
chairman
of
the
committee
as
appropriate
but
at
least
annually,
without
the
presence
of
executive
management,
and
has
direct
access
to
the
Chairman
of
the
board.
Financial
reporting
Detailed
management
accounts
are
prepared
every
four
weeks,
consolidated
in
a
single
system
and
reviewed
by
senior
management
and
the
board.
They
include
a
comprehensive
set
of
financial
reports
and
key
performance
indicators
covering
commercial,
operational,
environmental
and
people
issues.
Performance
against
budgets
and
forecasts
is
discussed
regularly
at
board
meetings
and
at
meetings
between
operational
and
group
management.
The
adequacy
and
suitability
of
key
performance
indicators
is
reviewed
regularly.
All
chief
executives
and
finance
directors
of
the
group’s
operations
are
asked
to
sign
an
annual
confirmation
that
their
business
has
complied
with
the
Group
Accounting
Manual
and
specifically
to
confirm
the
adequacy
and
accuracy
of
accounting
provisions.
Internal
control
The
board
acknowledges
its
responsibilities
for
the
group’s
system
of
internal
control
to
facilitate
the
identification,
assessment
and
management
of
risk,
the
protection
of
shareholders’
investments
and
the
group’s
assets.
The
directors
recognise
that
they
are
responsible
for
providing
a
return
to
shareholders,
which
is
consistent
with
the
responsible
assessment
and
mitigation
of
risks.
Effective
controls
ensure
that
the
group
is
not
exposed
to
avoidable
risk,
that
proper
accounting
records
have
been
maintained,
that
the
financial
information
used
within
the
business
is
reliable
and
that
the
consolidated
accounts
preparation
and
financial
reporting
processes
comply
with
all
relevant
regulatory
reporting
requirements.
The
dynamics
of
the
group
and
the
environment
within
which
it
operates
are
continually
evolving
together
with
its
exposure
to
risk.
The
system
is
designed
to
manage
rather
than
eliminate
the
risk
of
assets
being
unprotected
and
to
guard
against
their
unauthorised
use
and
the
failure
to
achieve
business
objectives.
Internal
controls
can
only
provide
reasonable
and
not
absolute
assurance
against
material
misstatement
or
loss.
The
directors
confirm
that
there
is
a
continuing
process
for
identifying,
evaluating
and
managing
the
risks
faced
by
the
group
and
the
operational
effectiveness
of
the
related
controls,
which
has
been
in
place
for
the
year
under
review
and
up
to
the
date
of
approval
of
the
annual
report
and
accounts.
They
also
confirm
that
they
have
regularly
reviewed
the
system
of
internal
controls
utilising
the
review
process
set
out
below.
Standards
There
are
guidelines
on
the
minimum
group-wide
requirements
for
health
and
safety
and
environmental
standards.
There
are
also
guidelines
on
the
minimum
level
of
internal
control
that
each
of
the
divisions
should
exercise
over
specified
processes.
Each
business
has
developed
and
documented
policies
and
procedures
to
comply
with
the
minimum
control
standards
established,
including
procedures
for
monitoring
compliance
and
taking
corrective
action.
The
board
of
each
business
is
required
to
confirm
bi-annually
that
it
has
complied
with
these
policies
and
procedures.
High-level
controls
All
operations
prepare
annual
operating
plans
and
budgets
which
are
updated
regularly.
Performance
against
budget
is
monitored
at
operational
level
and
centrally,
with
variances
being
reported
promptly.
The
cash
position
at
group
and
operational
level
is
monitored
constantly
and
variances
from
expected
levels
are
investigated
thoroughly.
Clearly
defined
guidelines
have
been
established
for
capital
expenditure
and
investment
decisions.
These
include
the
preparation
of
budgets,
appraisal
and
review
procedures
and
delegated
authority
levels.
Corporate
governance
continued
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
38
Directors’
report
//
Governance
//
Corporate
governance
Principal
risks
and
uncertainties
The
group’s
risk
management
process
seeks
to
enable
the
early
identification,
evaluation
and
effective
management
of
the
key
risks
facing
the
businesses
at
an
operational
level
and
to
operate
internal
controls
to
mitigate
these
risks.
The
key
risks
and
internal
control
procedures
are
reviewed
by
group
personnel
together
with
internal
audit
activities.
Each
business
is
responsible
for
regularly
assessing
its
risk
management
activities
to
ensure
good
practice
in
all
areas.
Compliance
with
group
requirements
is
monitored
six
monthly,
and
these
assessments
are
formally
reviewed
by
group
personnel
at
least
annually.
The
board
reviews
annually
the
risk
management
process
and
its
implementation
in
each
of
the
businesses.
A
review
of
the
main
risks
facing
the
group
is
embedded
within
every
board
agenda
and
summarised
on
an
annual
basis.
The
Audit
committee
receives
reports
on
internal
financial
control
issues
both
from
management
and
the
external
auditors
and
regularly
reports
to
the
board
for
the
purposes
of
the
board’s
annual
review.
The
principal
corporate
risks
as
identified
by
each
business
and
reviewed
by
the
board
are
currently:
Food
safety
Our
businesses
have
a
positive
role
to
play
in
contributing
to
the
quality
of
people’s
lives
by
providing
wholesome
and
nutritious
foods,
food
ingredients
and
animal
feedstuffs.
Sugar,
tea,
flour,
bread,
cereals
and
meat
products
are
part
of
people’s
daily
lives
all
over
the
world
and
every
effort
is
made
to
ensure
these
are
produced
efficiently
and
to
a
high
quality.
To
manage
food
safety
risks,
manufacturing
sites
operate
food
safety
systems
which
are
regularly
reviewed
to
ensure
they
remain
effective,
including
compliance
with
all
regulatory
requirements
for
hygiene
and
food
safety.
Food
products
are
made
to
high
standards
regardless
of
where
they
are
manufactured
and
food
safety
is
put
before
economic
considerations.
Global
economic
slowdown
and
changing
consumer
demand
The
economic
slowdown
and
turmoil
in
the
global
economy
has
adversely
impacted
consumer
markets,
including
those
in
which
we
operate.
Our
businesses
are
dependent
on
continued
consumer
demand
for
their
products,
and
reduced
consumer
wealth
may
result
in
consumers
becoming
unwilling
or
unable
to
purchase
our
products,
with
clear
implications
for
turnover
and
profitability.
Our
strategy
is
aimed
at
delivering
value
to
consumers,
through
strong
brands,
supported
by
differentiated
innovation
and
continued
product
improvement.
We
seek
to
build
mutually
rewarding
relationships
with
customers
in
order
to
make
our
products
available
across
all
relevant
channels.
We
have
a
significant
number
of
global
brands
and
any
adverse
event
affecting
consumer
confidence
or
continuity
of
supply
of
such
a
brand
could
have
an
adverse
impact
in
many
of
our
markets,
or
in
some
cases
affect
intangible
asset
values.
We
support
our
brands
and
their
growth
through
competitive
levels
of
investment
in
advertising
and
promotions.
The
breadth
of
the
business
portfolio
and
our
geographic
reach
also
help
to
mitigate
general
economic
risks.
We
aim
to
protect
the
value
of
our
brands
through
research
and
development,
product
quality
and
by
operating
in
accordance
with
relevant
laws
and
regulations.
These
measures
are
aimed
at
extending
our
consumer
offerings,
reducing
the
impact
of
falling
consumer
demand
or
of
consumers
switching
to
alternative
products,
thus
allowing
us
to
compete
effectively
in
our
key
categories
and
countries.
Input
costs,
supplier
and
supply
chain
reliance
Primark’s
ethical
trade
programme
has
been
strengthened
considerably
over
the
past
year.
In
March,
Primark
appointed
its
first
Ethical
Trade
Director
and
in
the
last
12
months
it
has
doubled
the
size
of
its
in-house
ethical
trade
team
around
the
world.
Primark
is
visiting
and
working
with
more
suppliers
than
ever
before.
It
will
audit
more
than
1,000
factories
in
2009,
up
from
533
last
year.
An
important
and
growing
area
of
team
activity
is
training,
both
internally
and
externally.
In
the
first
half
of
2009
Primark’s
buyers
and
key
personnel
received
over
1,500
hours
of
ethical
trade
training,
as
part
of
a
continuous
programme
to
help
them
understand
the
impact
of
their
actions
further
down
the
supply
chain
and
improve
their
purchasing
practices.
Primark
is
concentrating
on
developing
the
support
it
gives
to
suppliers
to
meet
its
code
of
conduct
and
held
supplier
training
sessions
in
India
and
the
UK.
Plans
are
under
way
for
others
in
China,
Bangladesh
and
Turkey
to
be
held
by
the
end
of
2009.
In
addition
to
a
new
supplier
management
system
which
will
help
with
monitoring
and
remediation,
a
suppliers’
extranet,
including
many
practical
tools
to
improve
compliance,
is
due
to
be
launched
by
the
end
of
2009.
Primark
is
engaging
with
local
experts,
including
unions
and
Non-Government
Organisations
(NGOs),
in
many
of
the
regions
from
which
it
sources.
It
has
built
solid
partnerships
with
a
number
of
NGOs,
such
as
a
grassroots
project
with
SAVE
in
India,
to
understand
and
address
the
challenges
faced
by
workers
in
the
communities
where
its
products
are
made,
and
in
Bangladesh
a
project
with
Nari
Uddug
Kendra,
particularly
focusing
on
training
workers
on
their
entitlements,
including
wages
and
associated
rights.
Two
projects
on
living
wages,
one
in
Bangladesh
and
one
in
China,
are
under
way
with
the
aim
of
creating
long-term
improvements
in
labour
standards.
Primark
is
an
active
member
of
the
Ethical
Trading
Initiative
and
participates
in
a
number
of
working
groups
including
the
General
Merchandisers,
Homeworking,
Purchasing
Practices,
Reporting
and
China
Forum.
Primark
launched
a
dedicated
ethical
trade
section
on
its
website
in
May
which
provides
information
and
updates
on
its
programme.
Directors’
report
//
Governance
//
Corporate
governance
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
39
Profitable
manufacturing
is
dependent
on
obtaining
adequate
supplies
of
production
materials
in
a
timely
and
cost-effective
manner.
Prices
are
significantly
influenced
by
global
economic
conditions
and
can
fluctuate,
which
may
have
an
impact
on
margins
and
cash
flows.
We
are
also
dependent
on
suppliers
and
global
supply
chains
as
a
means
of
producing
and
supplying
our
products.
As
a
result
we
are
exposed
to
business
interruption
from
natural
disasters
or
catastrophes
and
through
additional
risks
of
changes
in
local
legal
and
regulatory
schemes,
labour
shortages
and
disruptions
from
environmental
and
industrial
incidents.
In
the
current
climate
we
also
face
a
risk
that
our
suppliers
may
fail
to
meet
their
contractual
obligations.
Active
monitoring
of
suppliers
and
the
supply
chain
is
in
place,
and
regular
supplier
counterparty
risk
analysis
is
undertaken
to
mitigate
this
risk.
We
actively
monitor
our
external
environment,
review
and
revisit
our
business
continuity
and
disaster
recovery
plans,
and
continue
to
adapt
our
internal
cost
structures
to
deliver
products
at
competitive
prices.
Competition
rules
The
penalties
for
failing
to
comply
with
the
1998
Competition
Act,
the
2003
Enterprise
Act,
relevant
EU
law
and
all
relevant
competition
legislation
are
recognised
as
risks
to
be
managed
within
the
group.
Clear
policy
direction,
which
includes
compulsory
awareness
training
and
close
support
from
the
in-house
legal
department,
has
reduced
the
likelihood
of
the
group
breaching
these
regulations.
Environment
We
recognise
the
impact
that
our
businesses
have
on
the
environment.
Therefore,
as
a
minimum,
we
comply
with
current
applicable
legislation
of
the
countries
in
which
we
operate
and
our
operations
are
conducted
with
a
view
to
ensuring
that:
emissions
to
air,
releases
to
water
and
landfilling
of
solid
wastes
do
not
cause
unacceptable
environmental
impacts
and
do
not
offend
the
community;
significant
plant
and
process
changes
are
assessed
and
positively
authorised
in
advance
to
prevent
adverse
environmental
impacts;
energy
is
used
efficiently
and
consumption
is
monitored;
natural
resources
are
used
efficiently;
raw
material
waste
is
minimised;
solid
waste
is
reduced,
reused
or
recycled
where
practicable;
the
amount
of
packaging
used
for
our
products
is
minimised,
consistent
with
requirements
for
food
safety
and
product
protection;
products
are
transported
efficiently
to
minimise
fuel
usage,
consistent
with
customers’
demands,
production
arrangements
and
vehicle
fleet
operations;
accidents
are
prevented
so
far
as
is
reasonably
practical;
and
effective
emergency
response
procedures
are
in
place
to
minimise
the
impact
of
foreseeable
incidents.
Particular
attention
is
paid
to
recently
acquired
businesses
to
ensure
they
operate
in
accordance
with
the
standards
we
expect
of
the
group’s
businesses.
The
principal
environmental
risk
is
the
use
of
energy
and
the
resultant
emissions
of
carbon
dioxide,
a
gas
involved
in
climate
change.
The
efficient
use
of
energy
is
a
major
element
of
our
environmental
policy.
Indeed,
all
sites
which
are
subject
to
the
EU’s
Pollution
Prevention
and
Control
regime
are
also
under
a
statutory
requirement
to
minimise
energy
consumption
by
use
of
best
available
techniques.
Our
manufacturing
operations
in
the
UK
participate
in
the
UK
Government’s
Climate
Change
Agreement
Scheme
in
which
energy-intensive
businesses
receive
an
80%
discount
from
the
Climate
Change
Levy
in
return
for
meeting
energy-efficiency
or
carbon-saving
targets.
The
sugar
sites
in
the
UK
and
Poland
participate
in
the
EU
Emissions
Trading
Scheme.
These
schemes
encourage
the
sites
to
reduce
energy
consumption
and
therefore
reduce
emissions
of
carbon
dioxide
cost-effectively.
In
addition
to
the
consumption
of
energy
we
generate
surplus
electricity
from
highly
efficient
Combined
Heat
and
Power
(CHP)
plants
and
sell
this
electricity
to
other
companies.
All
UK
CHP
plants
participate
in
the
UK
Government’s
CHP
quality
assurance
scheme
and
qualify
for
a
full
exemption
from
the
UK’s
Climate
Change
Levy.
Carbon
dioxide
is
emitted
directly
from
the
combustion
of
fossil
fuels
to
create
steam,
heat
and
electricity
at
our
factories,
and
indirectly
by
the
power
stations
from
which
we
buy
our
electricity.
The
use
of
bagasse
(sugar
cane
fibre,
which
is
a
renewable
resource
and
hence
carbon
neutral)
as
a
fuel
in
the
cane
factories
eliminates
the
need
to
use
coal
and
other
fossil
fuels
to
provide
energy
to
our
boilers.
Other
significant
environmental
risks
include
the
handling
and
disposal
of
waste
and
the
treatment
of
waste
water.
The
principal
legal
risk
is
regulatory
action
for
non-compliance
with
licence
conditions
and
statutory
requirements.
All
of
our
businesses
have
named
senior
executives
and
responsible
managers
accountable
for
waste,
and
the
management
of
the
physical
and
legal
risks,
for
which
they
employ
specialists,
is
included
in
their
annual
objectives.
Corporate
governance
continued
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
40
Directors’
report
//
Governance
//
Corporate
governance
We
use
Environmental
Resources
Management
Ltd
(ERM)
to
continue
our
rolling
programme
of
audits
of
the
management
of
environmental
risks
at
a
representative
sample
of
our
businesses.
The
sites
audited
are
selected
on
the
basis
of
materiality
with
regard
to
the
range
of
issues
as
well
as
their
contribution
to
the
health,
safety
and
environmental
performance
of
the
group
as
a
whole.
ERM
also
carry
out
a
sample
data
verification
process
on
the
group’s
data
to
check
for
completeness
and
accuracy.
Each
year
the
board
reviews
the
verified
results
and
provides
strategic
direction.
Businesses
are
required
to
develop
action
plans
as
appropriate
and
progress
is
monitored
by
the
group
health
and
safety
manager.
Details
of
our
environmental
performance
are
published
in
a
separate
report
on
our
website:
www.abf.co.uk
Health
and
safety
We
are
committed
to
providing
a
safe
and
healthy
workplace
in
line
with
local
regulations
to
protect
all
employees,
visitors
and
the
public
insofar
as
they
come
into
contact
with
foreseeable
work
hazards.
We
consider
health
and
safety
to
be
no
less
important
than
any
other
function.
We
require
our
businesses
to
build
a
culture
of
sustained
improvement.
People’s
health
and
safety
at
work
is
a
prime
responsibility
for
all
those
who
manage
and
supervise.
All
employees
and
those
working
on
behalf
of
the
Company
have
a
responsibility
for
the
health
and
safety
of
themselves
and
others
who
may
be
affected
by
their
actions.
We
ensure
that
they
are
well
informed,
appropriately
trained
and
are
consulted
on
matters
affecting
their
health
and
safety.
The
principal
health
and
safety
risks
relate
to
the
potential
for
serious
injuries,
fatal
accidents
and
regulatory
action
for
non-compliance
with
statutory
requirements.
As
with
environmental
risks,
all
the
group’s
businesses
have
named
accountable
senior
executives
who
employ
specialists
to
manage
these
risks,
which
form
part
of
their
annual
objectives.
We
use
ERM
to
audit
a
representative
sample
of
our
operations
to
understand
how
the
businesses
manage
their
risks
and
to
verify
the
data.
Businesses
are
required
to
develop
action
plans
as
appropriate
and
progress
is
monitored
by
the
group
health
and
safety
manager.
Details
of
our
safety
performance
are
published
in
a
separate
report
on
our
website:
www.abf.co.uk
People
The
group’s
performance
targets
require
us
to
have
the
right
calibre
of
people
at
all
levels.
We
must
compete
to
obtain
capable
recruits
for
the
businesses,
and
then
train
them
in
the
skills
and
competencies
that
are
needed
to
deliver
profitable
growth.
At
a
time
of
substantial
change
in
the
businesses,
there
is
a
particular
focus
on
creating
alignment
and
energetic
leadership.
Financial
and
commodity
risks
Treasury
operations
are
conducted
within
a
framework
of
board-approved
policies
and
guidelines
to
manage
the
group’s
financial
and
commodity
risks.
Financial
risks
essentially
arise
through
exposure
to
foreign
currencies,
interest
rates,
counterparty
credit
and
borrowings.
Commodity
risks
arise
from
the
procurement
of
raw
materials
and
the
exposure
to
changes
in
market
prices.
Liquidity
risk
arises
from
the
availability
of
internal
and
external
funding
to
enable
the
group
to
meet
its
financial
obligations
as
and
when
they
fall
due.
Sufficient
funding
is
maintained
by
way
of
external
loans
and
committed
bank
facilities
to
meet
our
expected
needs.
An
extended
period
of
constraint
in
the
capital
markets,
where
availability
of
funds
from
the
bank
loan
and
public
debt
markets
was
limited
at
a
time
when
cash
flow
was
under
pressure,
might
compromise
our
ability
to
implement
current
long-term
strategies.
Credit
risk
is
the
risk
that
a
counterparty
will
default
on
its
contractual
financial
obligations
resulting
in
a
loss
to
the
group.
Credit
risk
arises
from
cash
balances,
credit
exposures
to
customers
including
outstanding
receivables,
derivative
financial
instruments,
and
financial
guarantees.
Credit
risk
is
managed
at
both
a
group
and
business
level
according
to
internal
guidelines,
with
businesses
responsible
for
their
exposure
to
customer
credit
risk.
Financial
transactions
are
dealt
through
financial
institutions
with
a
credit
rating
of
A
or
better.
Details
of
the
group’s
accounting
and
risk
management
policies
with
respect
to
financial
instruments
and
the
associated
quantitative
and
qualitative
disclosures
are
set
out
in
note
25
on
pages
90
to
102.
Directors’
report
//
Governance
//
Corporate
governance
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
41
Taxation
risks
Tax
benefits
are
not
recognised
unless
it
is
probable
that
the
position
taken
is
sustainable.
Management
reviews
each
material
tax
benefit
to
assess
whether
a
provision
should
be
taken
against
full
recognition
of
the
benefit
on
the
basis
of
potential
settlement
through
negotiation
and/or
litigation.
Any
interest
and
penalties
on
tax
liabilities
are
provided
for
in
the
tax
charge.
The
group
operates
internationally
and
is
subject
to
tax
in
many
different
jurisdictions.
As
a
consequence,
the
group
is
routinely
subject
to
tax
audit
and
local
enquiries
which,
by
their
very
nature,
can
take
a
considerable
period
to
conclude.
Provision
is
made
for
known
issues
based
on
management’s
interpretation
of
country-specific
tax
law
and
the
likely
outcome.
Loss
of
a
major
site
and
business
continuity
The
group
operates
from
many
key
sites
the
loss
of
which,
for
example
as
a
result
of
fire,
would
present
significant
operational
difficulties.
Our
operations
have
business
continuity
plans
in
place
to
manage
the
impact
of
such
an
event
and
group
insurance
programmes
to
mitigate
the
financial
consequences.
Major
projects
The
group
undertakes
a
number
of
major
capital
investment
projects,
each
of
which
carries
the
risk
of
overspending
initial
cost
estimates,
overrunning
construction
timelines
and
failing
to
meet
design
specifications.
All
major
projects
are
managed
by
dedicated
teams
who
work
in
close
liaison
with
business
management.
Initial
project
plans
are
reviewed
by
group
management
and,
for
the
larger
projects,
by
the
board.
Updates
on
progress
are
provided
throughout
the
project.
Management
succession
The
devolved
nature
of
the
group
requires
us
to
pay
particular
attention
to
the
strength
of
the
various
management
teams
around
the
world,
with
specific
focus
on
succession
planning.
The
status
of
each
division’s
succession
plan
is
reviewed
with
group
management
twice
a
year,
and
with
the
board
annually.
Development
of
our
senior
managers
is
co-ordinated
by
the
Group
HR
Director
and
Head
of
Executive
Development.
In
addition,
a
small
number
of
executive
search
companies
have
been
briefed
to
introduce
us
to
talented
executives
from
other
companies
who
could
add
value
to
the
group.
Regulatory
and
political
environment
Our
businesses
are
subject
to
a
wide
variety
of
regulations
in
the
different
countries
in
which
they
operate
because
of
their
diverse
nature.
They
may
also
be
affected
by
political
developments
in
the
countries
in
which
they
operate.
These
uncertainties
in
the
external
environment
are
considered
when
developing
strategy
and
reviewing
performance
and
we
remain
vigilant
to
future
changes.
We
engage
with
governments
and
NGOs
to
ensure
the
views
of
our
stakeholders
are
represented
and
we
try
to
anticipate,
and
contribute
to,
important
changes
in
public
policy
wherever
we
operate.
Remuneration
report
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
42
Directors’
report
//
Governance
//
Remuneration
report
1.
Introduction
This
report
sets
out
the
policy
and
disclosures
on
directors’
remuneration
as
required
by
the
Large
and
Medium-sized
Companies
and
Groups
(Accounts
and
Reports)
Regulations
2008
issued
under
the
Companies
Act
2006
(the
‘Act’).
In
accordance
with
the
Act,
a
resolution
to
approve
this
report
will
be
proposed
at
the
forthcoming
annual
general
meeting
of
the
Company.
The
vote
will
have
advisory
status
in
respect
of
the
remuneration
policy
and
overall
remuneration
packages
and
will
not
be
specific
to
individual
levels
of
remuneration.
KPMG
Audit
Plc
has
audited
the
report
to
the
extent
required
by
the
Act,
being
the
sections
entitled
‘Directors’
remuneration’,
‘Long-term
incentives’,
‘Directors’
pensions’
and
‘Directors’
share
options’.
2.
The
Remuneration
committee
The
Remuneration
committee
is
responsible
to
the
board
for
determining
the
remuneration
policy
for
executive
directors,
together
with
the
specific
terms
and
conditions
of
employment
of
each
individual
director,
and
for
reviewing
the
overall
policy
for
executive
remuneration.
Committee
composition
The
Remuneration
committee
currently
consists
of
five
non-executive
directors.
The
members
of
the
committee
during
the
year
have
been:
Martin
Adamson
(Chairman
until
21
April
2009)
Charles
Sinclair
(Chairman
from
21
April
2009)
Tim
Clarke
Lord
Jay
Javier
Ferrán
Peter
Smith
Consultants
The
committee
has
retained
Towers
Perrin
to
provide
independent
market
information
and
remuneration
advice.
Towers
Perrin
does
not
provide
any
other
consulting
services
to
the
Company.
In
addition
to
Towers
Perrin,
the
following
people
provided
material
advice
or
services
to
the
committee
during
the
year:
George
Weston,
Chief
Executive
Des
Pullen,
Group
Human
Resources
Director
George
Weston
did
not
advise
in
respect
of
his
own
remuneration.
The
HR
Director
and
Towers
Perrin
provided
support
and
liaison
throughout
the
year.
3.
Directors’
remuneration
policy
The
remuneration
policy
of
the
Company
aims
to:
provide
alignment
between
remuneration
and
the
Company’s
business
objectives;
align
executive
rewards
with
shareholder
value;
attract
and
retain
high-calibre
executive
directors;
motivate
executive
directors
to
achieve
challenging
performance
levels
and
reward
them
for
so
doing;
recognise
both
individual
and
corporate
achievement;
and
reflect
the
diversity
of
the
group’s
interests.
The
total
remuneration
of
executive
directors
comprises
base
salary,
annual
and
long-term
incentives,
pension
provisions
and
other
benefits.
During
2009,
the
Remuneration
committee
reviewed
the
incentive
arrangements
for
executive
directors
and
other
senior
executives
and
concluded
that
the
current
arrangements
were
working
satisfactorily.
The
only
change
has
been
a
minor
alteration
to
the
financial
measures
in
the
annual
bonus,
such
that
working
capital
targets
will
be
more
stretching
in
the
future.
The
Remuneration
committee
continues
to
believe
that
a
substantial
element
of
compensation
should
be
‘at
risk’
in
order
to
reward
and
drive
performance
and
to
align
better
the
interests
of
executives
with
those
of
shareholders.
The
current
proportion
of
variable
pay
in
the
form
of
annual
performance
bonus
and
long-term
incentives
compared
to
base
salary
for
executive
directors
is
around
1.3
to
1
for
‘on
target’
performance.
Other
executives
are
eligible
to
participate
in
incentive
arrangements
similar
to
those
of
the
executive
directors,
and
based
on
the
same
principles,
but
with
lower
levels
of
potential
payout.
The
current
proportion
of
variable
pay
to
base
salary
for
first
line
executives
is
around
0.8
to
1
for
‘on
target’
performance.
Base
salary
Base
salaries
are
paid
to
individuals
for
delivering
a
fully
competent
level
of
performance,
and
are
reviewed
in
relation
to
median
market
data
for
comparable
companies
in
terms
of
size,
market
sector
and
complexity.
Other
considerations
are
individual
experience,
performance
and
scope
of
responsibility.
Base
salaries
are
normally
reviewed
on
an
annual
basis
or
following
a
significant
change
in
responsibilities.
The
committee
also
takes
into
account
pay
and
employment
conditions
of
employees
in
the
Company
and
of
other
undertakings
in
the
same
group
as
the
Company
when
determining
directors’
remuneration.
Directors’
report
//
Governance
//
Remuneration
report
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
43
Annual
performance
bonus
Executive
directors
and
other
senior
executives
are
eligible
to
participate
in
an
annual
cash-based
bonus
scheme
with
payments
based
on
the
achievement
of
stretching
financial
targets
and
personal
performance
assessed
against
individual
short
and
medium-term
objectives.
Financial
targets
for
all
ABF
executives
are
set
on
a
business-by-business
basis
and
reflect
what
can
be
directly
influenced
and
the
area
of
work
for
which
each
executive
is
accountable.
Adjusted
operating
profit
and
working
capital
were
chosen
as
the
prime
financial
measures
as
they
are
common
metrics
which
are
used
on
a
day-to-day
basis
to
drive
and
monitor
performance
within
the
group.
At
the
start
of
the
financial
year,
budgeted
operating
profit
is
set
as
the
‘on
target’
performance
level,
and
the
Remuneration
committee
determines
the
range
of
operating
profit
at
which
the
minimum
and
maximum
incentive
payouts
will
be
made.
Similarly
the
target
and
range
for
working
capital
as
a
percentage
of
sales
is
determined,
and
this
acts
as
a
multiplier
to
the
bonus
achieved
for
adjusted
operating
profit,
whereby
that
bonus
can
be
enhanced
or
reduced
by
up
to
20%.
The
maximum
annual
bonus
opportunity
for
executive
directors
is
150%
of
base
salary.
Up
to
20%
may
be
paid
for
achievement
of
specific
personal
objectives
and
up
to
130%
may
be
paid
for
achievement
of
financial
results
as
outlined
above.
‘On
target’
performance
yields
around
78%
of
base
salary.
Long-term
incentives
Long-term
incentives
are
paid
in
shares
to
reward
long-term
business
growth
and
to
promote
executive
retention.
The
Associated
British
Foods
Executive
Share
Incentive
Plan
2003
(‘the
Share
Incentive
Plan’)
was
established
following
shareholder
approval
at
the
2003
annual
general
meeting.
Under
this
scheme,
long-term
awards
are
made
in
the
form
of
a
conditional
allocation
of
shares
which
are
released
if,
and
to
the
extent
that,
performance
targets
are
satisfied
over
a
specified
three-year
period.
As
a
result
of
the
review
of
total
remuneration
undertaken
in
2006,
revised
incentive
plan
arrangements
were
introduced
in
September
2006,
and
for
the
first
time
it
was
agreed
that
executive
directors
should
be
granted
an
annual
allocation
of
conditional
shares
thus
creating
a
series
of
overlapping
three-year
performance
periods.
The
first
allocation
under
the
new
arrangements
was
made
in
November
2006,
the
second
allocation
in
November
2007
and
the
third
in
November
2008.
All
these
allocations
were
to
a
maximum
face
value
of
125%
of
base
salary,
and
related
to
three-year
performance
periods
September
2006
to
September
2009,
September
2007
to
September
2010,
and
September
2008
to
September
2011
respectively.
Performance
under
the
long-term
share
plan
for
all
three
allocations
has
been
and
will
be
measured
against
an
absolute
range
of
5%
to
11%
compound
annual
growth
in
adjusted
earnings
per
share.
Adjusted
earnings
per
share
was
chosen
as
the
measure
for
long-term
incentives
because:
it
is
a
measure
which
is
well
understood
both
by
participants
and
shareholders;
it
is
a
published
figure
with
limited
adjustments;
and
it
encompasses
the
diverse
nature
of
the
group.
It
was
also
agreed
to
use
an
absolute
rather
than
a
relative
measure,
as
ABF
is
a
global
business
for
which
UK
inflation
factors
are
largely
irrelevant.
Other
measures
have
been
considered,
but
found
to
be
unhelpful
or
inappropriate.
Measures
which
require
testing
against
a
group
of
companies,
for
example,
relative
TSR,
are
difficult
to
use
given
the
problem
of
finding
realistic
comparators.
Measures
of
cash
flow
or
returns
are
already
encompassed
within
the
adjusted
earnings
per
share
measure.
The
three-year
vesting
period
for
the
first
share
allocation
ends
on
21
November
2009.
As
21
November
is
a
non-trading
day,
shares
are
due
for
release
on
23
November.
The
ABF
group
performance
conditions
for
the
financial
years
September
2006
to
September
2009
have
not
been
met
and
there
will
be
no
release
of
shares
to
executive
directors
for
the
2006/9
Scheme.
However
as
all
financial
targets
are
set
by
reference
to
the
business
for
which
each
executive
is
directly
responsible,
and
a
number
of
businesses
have
met
their
targets,
52
divisional
executives,
representing
around
73%
of
eligible
participants,
will
receive
a
release
of
shares
in
November.
The
executive
directors’
interests
in
shares
under
the
Share
Incentive
Plan
are
as
follows:
Conditional
Conditional
Market
price
End
of
Shares
Market
price
allocations
allocations
at
date
performance
Vesting
vested
during
at
date
of
Value
of
shares
as
of
shares
as
Award
date
of
award
period
date
the
year
vesting
vested
at
13.09.08
at
12.09.09
George
Weston
21.11.06
890.1p
12.09.09
21.11.09
94,793
94,793
21.11.07
905.85p
18.09.10
21.11.10
103,494
103,494
21.11.08
656p
17.09.11
21.11.11
157,203
John
Bason
21.11.06
890.1p
12.09.09
21.11.09
68,812
68,812
21.11.07
905.85p
18.09.10
21.11.10
71,618
71,618
21.11.08
656p
17.09.11
21.11.11
104,802
Remuneration
report
continued
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
44
Directors’
report
//
Governance
//
Remuneration
report
3.
Directors’
remuneration
policy
continued
Under
the
terms
of
the
Scheme,
the
fourth
allocation
of
conditional
shares,
to
a
maximum
face
value
of
125%
of
base
salary,
will
be
made
on
or
after
23
November
2009.
The
committee
has
reviewed
the
performance
criteria
and
has
determined
that
this
allocation
will
again
be
measured
against
compound
annual
growth
in
adjusted
earnings
per
share,
in
the
range
of
5%
to
11%
at
the
end
of
the
performance
period
in
September
2012.
Other
benefits
Executive
directors
are
also
entitled
to
the
provision
of
a
fully
expensed
company
car,
private
medical
insurance,
life
assurance,
home
and
mobile
telephone
costs
and
the
reimbursement
of
reasonable
business
expenses.
The
taxable
value
of
these
benefits
is
included
in
the
table
of
directors’
remuneration
below.
4.
Directors’
remuneration
Executive
directors’
salaries
were
reviewed
on
1
December
2008
in
accordance
with
normal
policy.
George
Weston’s
salary
was
increased
by
4.24%
to
£860,000
and
John
Bason’s
salary
was
increased
by
5.0%
to
£577,500.
Executive
directors’
salaries
are
next
subject
to
review
on
1
December
2009
but
increases,
if
any,
are
expected
to
be
modest.
The
board
reviews
non-executive
directors’
fees
periodically
in
the
light
of
fees
payable
in
comparable
companies
and
the
importance
attached
to
the
retention
and
attraction
of
high-calibre
individuals
as
non-executive
directors.
Fees
are
paid
on
a
per
annum
basis
and
are
not
varied
for
the
number
of
days
worked.
The
current
fee
for
a
non-executive
director
is
£54,000
per
annum.
The
chairman
of
the
Audit
committee
and
the
Senior
Independent
Director
are
paid
an
additional
fee
of
£10,000
per
annum.
The
Chairman
is
paid
an
annual
fee
of
£300,000
per
annum.
Non-executive
directors
do
not
participate
in
the
Company’s
annual
or
long-term
incentive
plans
and
take
no
part
in
any
discussion
or
decision
concerning
their
own
fees.
No
adjustments
were
made
to
the
fees
in
December
2008,
but
the
next
review
will
take
place
in
December
2009.
The
remuneration
paid
to
all
directors
for
the
year
to
12
September
2009
was
as
follows:
For
the
year
to
12
September
2009
Salary
Annual
2009
2008
or
fees
bonus*
Benefits
total
total
£000
£000
£000
£000
£000
Non-executive
directors
Martin
Adamson
(retired
21
April
2009)
167
167
266
Charles
Sinclair
(Chairman
from
21
April
2009)
159
159
Galen
Weston
Lord
MacGregor
(retired)
12
Mike
Alexander
(retired)
10
Tim
Clarke
64
64
59
Lord
Jay
54
54
52
Javier
Ferrán
54
54
52
Peter
Smith
64
64
61
Executive
directors
George
Weston
832
1,165
14
2,011
1,727
John
Bason
552
780
24
1,356
1,167
*
2008/9
bonus
to
be
paid
in
December
2009
for
the
financial
year
2008/9.
Directors’
report
//
Governance
//
Remuneration
report
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
45
5.
Directors’
pensions
The
Remuneration
committee
aims
to
ensure
that
retirement
benefits
are
in
line
with
best
practice
standards
adopted
by
major
companies
in
continental
Europe
and
the
United
Kingdom.
In
accordance
with
this
policy,
executive
directors
are
covered
by
final
salary,
defined
benefit
arrangements
and
can
retire
at
their
normal
retirement
age
with
retirement
benefits
broadly
equivalent
to
two
thirds
of
final
pensionable
salary.
The
Company
pension
schemes
are
HMRC
approved
but
the
executive
directors
also
have
entitlements
under
employer-financed
arrangements
which
are
unregistered.
Directors’
pension
disclosure
for
year
ended
12
September
2009
The
table
below
shows
the
defined
benefit
pension
entitlements
from
the
Associated
British
Foods
Pension
Scheme
(‘the
ABF
Scheme’),
and
employer-financed
arrangements
where
appropriate,
of
executive
directors
of
Associated
British
Foods
plc
who
were
members
of
the
ABF
Scheme
during
the
year
ended
12
September
2009.
Pension
entitlements
and
corresponding
transfer
values
increased
as
follows
during
the
year:
Increase
Total
Value
of
Value
of
Value
of
Increase
in
accrued
accrued
Director’s
net
increase
accrued
accrued
Total
change
in
accrued
pension
net
pension
contributions
in
accrual
pension
pension
in
value
pension
of
inflation
at
12.09.09
during
period
over
period
at
12.09.09
at
13.09.08
during
period
£000
pa
£000
pa
£000
pa
£000
£000
£000
£000
£000
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
George
Weston
41
41
304
18
358
2,984
2,290
694
John
Bason
24
24
161
18
318
2,476
1,865
611
Notes:
1.
Pension
accruals
(A)
and
(C)
relate
to
the
amounts
which
would
be
paid
annually
on
retirement
based
on
service
to
the
end
of
year
or
earlier
retirement.
2.
The
pension
values
(E),
(F)
and
(G)
are
transfer
values
calculated
in
accordance
with
Actuarial
Guidance
Note
GN11,
and
without
making
any
deduction
for
any
underfunding.
3.
The
value
of
net
increase
in
pension
(E)
represents
the
incremental
value
to
the
director
of
his
pension
benefits
during
the
year,
resulting
from
additional
service
and
increases
in
salary.
It
is
based
on
the
increase
in
accrued
pension
net
of
inflation
(B)
after
deducting
the
director’s
contribution
during
the
year
(D).
4.
The
change
in
the
transfer
value
(H)
includes
the
effect
of
fluctuations
in
the
transfer
value
due
to
factors
beyond
the
control
of
the
Company
and
directors,
such
as
stock
market
movements.
The
director’s
contributions
during
the
year
(D)
are
excluded
from
this
value.
5.
Both
directors
opted
out
of
the
ABF
Scheme
on
5
April
2006
and
since
then
have
earned
benefits
in
the
Employer
Financed
Retirement
Benefit
Scheme
(EFRBS).
The
figures
shown
represent
the
aggregate
of
benefits
in
the
ABF
scheme
and
the
EFRBS.
6.
Voluntary
contributions
paid
by
directors
and
resulting
benefits
are
not
shown.
7.
Pension
benefits
include
a
50%
spouse’s
pension.
Pensions
are
guaranteed
to
increase
in
payment
in
line
with
RPI,
limited
each
year
to
5%
for
service
accrued
to
31
December
2007,
and
2.5%
for
benefits
accrued
post
1
January
2008.
Additional
discretionary
increases
to
pensions
in
payment
have
been
granted
in
the
past.
Remuneration
report
continued
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
46
Directors’
report
//
Governance
//
Remuneration
report
6
Directors’
share
options
There
are
two
schemes
under
which
both
HMRC
approved
and
unapproved
options
may
be
granted:
The
Associated
British
Foods
plc
1994
Share
Option
Scheme
(‘the
1994
Scheme’)
requires
options
granted
to
be
held
for
five
years
before
they
become
exercisable,
at
which
point
they
are
not
subject
to
any
performance
criteria;
and
The
Associated
British
Foods
2000
Executive
Share
Option
Scheme
(‘the
2000
Scheme’),
under
which
options
granted
become
exercisable
by
participants
after
an
initial
three-year
performance
period,
to
the
extent
that
performance
criteria
have
been
satisfied.
Performance
criteria
are
based
on
robust
levels
of
business
performance
over
the
period.
It
has
been
agreed
that
share
option
awards
will
not
form
part
of
the
normal
remuneration
package
for
executives,
although
the
Remuneration
committee
reserves
the
right
to
grant
share
options
on
a
very
selective
basis.
The
number
of
share
options
held
by
the
directors
under
the
1994
Scheme
and
the
2000
Scheme
were
as
follows:
Earliest
normal
Options
as
Lapsed
in
Exercised
Options
as
Exercise
exercise
Expiry
Exercise
Price
on
at
13.09.08
year
during
year
at
12.09.09
price
date
date
date
exercise
George
Weston
22,500**
22,500
484p
17.01.04
16.01.11
John
Bason
50,000**
50,000
484p
17.01.04
16.01.11
50,000*
50,000
497p
07.12.06
06.12.11
50,000*
50,000
564p
09.12.07
08.12.12
*
Granted
under
The
Associated
British
Foods
plc
1994
Share
Option
Scheme.
**
Granted
under
The
Associated
British
Foods
2000
Executive
Share
Option
Scheme.
At
close
of
business
on
11
September
2009,
the
last
trading
day
before
the
end
of
the
financial
year,
the
market
value
of
the
Company’s
ordinary
shares
was
838.0
pence.
During
the
previous
12
months
the
price
ranged
from
611.5
pence
to
848.5
pence.
7.
Performance
review
The
performance
graph
illustrates
the
performance
of
the
Company
over
the
past
five
years
in
terms
of
total
shareholder
return
compared
with
that
of
the
companies
comprising
the
FTSE
100
index.
This
index
has
been
selected
because
it
represents
a
cross-section
of
leading
UK
companies.
18
0
16
0
14
0
12
0
10
0
80
60
FTSE
100
Year-on-year
TSR
ABF
v
FTSE
100
(2004
=
100)
2004
2005
2006
2007
2008
2009
ABF
Directors’
report
//
Governance
//
Remuneration
report
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
47
8.
Directors’
service
contracts
It
is
the
Company’s
policy
that
all
executive
directors
have
rolling
contracts
with
12
month
notice
periods.
The
Company’s
Articles
of
Association
require
that
all
directors
retire
from
office
at
every
third
annual
general
meeting.
Details
of
the
contracts
of
service
of
directors
who
served
during
the
year
ended
12
September
2009
are
set
out
below:
Effective
date
Notice
Notice
Date
of
of
current
period
from
period
from
appointment
contract
Company
director
Martin
Adamson*
11.10.99
11.12.02
6
months
6
months
Charles
Sinclair**
01.10.08
21.04.09
12
months
6
months
George
Weston
19.04.99
01.06.05
12
months
12
months
John
Bason
04.05.99
16.03.99
12
months
12
months
Tim
Clarke
03.11.04
03.11.04
6
months
6
months
Lord
Jay
01.11.06
01.11.06
6
months
6
months
Javier
Ferrán
01.11.06
01.11.06
6
months
6
months
Peter
Smith
28.02.07
28.02.07
6
months
6
months
*
Martin
Adamson
retired
as
non-executive
Chairman
on
21
April
2009.
**
Charles
Sinclair’s
notice
period
will
reduce
to
six
months
from
April
2010.
The
board
has
not
considered
it
appropriate
to
enter
into
a
formal
letter
of
appointment
with
Galen
Weston
in
view
of
his
relationship
with
the
ultimate
holding
company
of
Associated
British
Foods
plc,
Wittington
Investments
Limited.
He
receives
no
fees
for
performing
his
role
as
a
non-executive
director
and
Associated
British
Foods
plc
does
not
reimburse
him
for
any
expenses
incurred
by
him
in
that
role.
The
committee
takes
the
view
that
the
entitlement
of
the
executive
directors
to
the
security
of
12
months’
notice
of
termination
of
employment
is
in
line
with
the
practice
of
many
comparable
companies.
The
Remuneration
committee’s
aim
is
always
to
deal
fairly
with
cases
of
termination
whilst
taking
a
robust
line
in
minimising
any
compensation.
The
Remuneration
committee
has
given
due
consideration
to
the
recommendations
contained
in
the
Combined
Code
regarding
inclusion
of
explicit
provisions
in
directors’
service
contracts
for
compensation
commitments
in
the
event
of
early
termination.
The
committee
will
continue
to
keep
under
review
its
current
practice,
which
is
not
to
include
such
provisions
in
order
to
enable
it
to
respond
appropriately
to
particular
circumstances.
9.
Directors’
beneficial
interests
The
directors
of
the
Company
as
at
12
September
2009
had
the
following
beneficial
interests
in
the
shares
of
the
Company
and
its
holding
company.
As
at
As
at
12
September
13
September
2009
2008
Charles
Sinclair
Associated
British
Foods
plc,
ordinary
shares
of
5
15
/
22
p
6,740
George
Weston
Wittington
Investments
Limited,
ordinary
shares
of
50p
5,209
5,209
Associated
British
Foods
plc,
ordinary
shares
of
5
15
/
22
p
3,188,783
3,188,783
John
Bason
Associated
British
Foods
plc,
ordinary
shares
of
5
15
/
22
p
17,216
16,880
Galen
Weston
Wittington
Investments
Limited,
ordinary
shares
of
50p
37,953
37,953
Associated
British
Foods
plc,
ordinary
shares
of
5
15
/
22
p
5,672,560
5,672,560
Tim
Clarke
Associated
British
Foods
plc,
ordinary
shares
of
5
15
/
22
p
4,000
4,000
Lord
Jay
Associated
British
Foods
plc,
ordinary
shares
of
5
15
/
22
p
100
100
Javier
Ferrán
Associated
British
Foods
plc,
ordinary
shares
of
5
15
/
22
p
500
500
Peter
Smith
Associated
British
Foods
plc,
ordinary
shares
of
5
15
/
22
p
2,000
2,000
In
addition
to
the
above,
George
Weston
and
John
Bason
were
allocated
a
conditional
grant
of
shares
under
the
Share
Incentive
Plan,
details
of
which
are
shown
on
page
43.
The
interests
above
remained
the
same
at
3
November
2009.
10.
Executive
directors
serving
as
non-executive
directors
The
Remuneration
committee
has
determined
that
executive
directors
serving
as
non-executive
directors
of
other
companies
may
retain
any
fees
earned.
During
the
year,
George
Weston
served
as
a
non-executive
director
of
Wittington
Investments
Limited,
for
which
he
received
no
compensation.
11.
Compliance
statement
In
compliance
with
the
Large
and
Medium-sized
Companies
and
Groups
(Accounts
and
Reports)
Regulations
2008,
the
auditable
part
of
the
Remuneration
report
comprises
directors’
remuneration
on
page
44,
directors’
pensions
on
page
45,
directors’
share
options
on
page
46
and
long-term
incentives
on
page
43.
Paul
Lister
Company
Secretary
Other
disclosures
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
48
Directors’
report
//
Governance
//
Other
disclosures
Business
review
The
Companies
Act
2006
requires
the
Company
to
set
out
in
the
Directors’
report
a
fair
review
of
the
business
of
the
Company
during
the
financial
year
ended
12
September
2009
including
an
analysis
of
the
position
of
the
business
at
the
end
of
the
financial
year
and
a
description
of
the
principal
risks
and
uncertainties
facing
the
Company
(the
‘Business
review’).
The
purpose
of
the
Business
review
is
to
enable
shareholders
to
assess
how
the
directors
have
performed
their
duties
under
section
172
of
the
Companies
Act
2006,
being
the
duty
to
promote
the
success
of
the
Company.
The
information
that
fulfils
the
requirements
of
the
Business
review
can
be
found
in
the
following
sections
of
this
report:
Chairman’s
statement
on
pages
4
and
5.
Our
group
at
a
glance
on
pages
2
and
3.
Operating
review
on
pages
6
to
23,
which
includes
a
review
of
the
external
environment,
key
strategic
aims
and
performance
measures.
Financial
review
on
pages
24
and
25.
Corporate
responsibility
on
pages
26
and
27.
Principal
risks
and
uncertainties
are
described
on
pages
38
to
41.
Details
of
the
principal
operating
subsidiaries
are
set
out
on
page
104.
Principal
activities
The
activities
of
the
group
principally
concern
the
processing
and
manufacture
of
food
worldwide
and
textile
retailing
in
the
UK
and
continental
Europe.
Comments
on
the
development
of
the
business
during
the
period
under
review
and
on
the
future
outlook
are
contained
within
the
Chairman’s
statement
on
pages
4
and
5
and
the
Operating
review
on
pages
6
to
23.
The
Company
is
the
holding
company
for
the
Associated
British
Foods
group
(‘the
group’).
Details
of
the
principal
operating
subsidiaries
are
set
out
on
page
104.
The
audited
financial
statements
of
the
group
and
Company
appear
on
pages
54
to
111.
Results
and
dividends
The
consolidated
income
statement
is
on
page
54.
Profit
for
the
financial
year
attributable
to
equity
shareholders
amounted
to
£359m.
The
directors
recommend
a
final
dividend
of
14.1p
per
ordinary
share,
to
be
paid,
if
approved,
on
8
January
2010
which,
together
with
the
interim
dividend
of
6.9p
per
share
paid
in
July,
amounts
to
21.0p
for
the
year.
Dividends
are
detailed
on
page
69.
Research
and
development
Innovative
use
of
existing
and
emerging
technologies
will
continue
to
be
crucial
to
the
successful
development
of
new
products
and
processes
for
the
group.
The
Company
has
a
major
technical
centre
in
the
UK
at
the
Allied
Technical
Centre.
Facilities
also
exist
at
ACH
Food
Companies
in
the
US,
Weston
Technologies
and
AB
Mauri
in
Australia
and
AB
Enzymes
in
Germany.
These
centres
support
the
technical
resources
of
the
trading
divisions
in
the
search
for
new
technology
and
in
monitoring
and
maintaining
high
standards
of
quality
and
food
safety.
Charitable
and
political
donations
Contributions
to
charitable
organisations
by
the
group
during
the
year
totalled
£2.4m
(2008
£1.6m).
No
political
donations
were
made
during
the
year.
Financial
instruments
Details
of
the
group’s
use
of
financial
instruments,
together
with
information
on
our
risk
objectives
and
policies
and
our
exposure
to
price,
credit,
liquidity,
cash
flow
and
interest
rate
risks,
can
be
found
in
note
25
on
pages
90
to
102.
Payments
to
suppliers
The
Company
has
no
material
trade
creditors
but
has
a
group
policy
on
payment
of
suppliers
set
out
in
its
Business
Principles
which
states
that
the
group
settles
its
bills
promptly,
being
a
signatory
to
the
Prompt
Payment
Code.
Further
information
concerning
this
Code,
and
copies
of
it,
can
be
found
at
www.promptpaymentcode.org.uk
Employees
Employees
are
the
group’s
most
crucial
resource,
and
it
therefore
abides
by
the
following
principles:
Equal
opportunities
it
is
committed
to
offering
equal
opportunities
to
all
people
in
their
recruitment,
training,
continuing
employment
and
career
development,
having
regard
for
their
particular
aptitudes
and
abilities.
Full
and
fair
consideration
is
given
to
applicants
with
disabilities
and
every
effort
is
made
to
give
employees
who
become
disabled
whilst
employed
by
the
group
an
opportunity
for
retraining.
It
is
group
policy
that
the
training,
career
development
and
promotion
of
disabled
persons
should,
as
far
as
possible,
be
the
same
as
that
of
other
employees.
Health
and
safety
health
and
safety
are
considered
as
equal
in
importance
to
that
of
any
other
function
of
the
group
and
its
business
objectives.
The
policy
and
a
full
global
report
is
available
on
the
Company’s
website
at
www.abf.co.uk
Directors’
report
//
Governance
//
Other
disclosures
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
49
Harassment
the
group
will
not
tolerate
sexual,
mental
or
physical
harassment
in
the
workplace.
It
expects
incidents
of
harassment
to
be
reported
to
the
appropriate
human
resources
director.
Human
rights
managers
must
take
account
of
the
core
International
Labour
Organisation
labour
conventions
and
strive
to
observe
the
UN
Declaration
on
Human
Rights,
by
respecting
the
dignity
and
human
rights
of
its
employees
and
in
particular
as
stated
below:
‘Universal
respect
for
an
observance
of
human
rights
and
fundamental
freedoms
for
all
without
discrimination
as
to
race,
sex,
language
or
religion’.
It
remunerates
fairly
with
respect
to
skills,
performance,
its
peers
and
local
conditions.
Communication
the
group
will
brief
and
consult
employees
and
their
representatives
on
all
relevant
matters
on
a
regular
basis
in
order
to
take
their
views
into
account
with
regard
to
decision-making
and
to
achieve
a
common
awareness
of
all
the
financial
and
economic
factors
affecting
the
performance
of
the
group.
Security
the
security
of
our
staff
and
customers
is
paramount
and
the
group
will
at
all
times
take
the
necessary
steps
to
minimise
risks
to
their
safety.
Property,
plant
&
equipment
The
group’s
property,
plant
&
equipment
are
included
in
the
financial
statements
at
depreciated
historic
cost.
The
properties
are
employed
in
the
business
and
many
of
them
were
acquired
when
market
values
were
substantially
lower
than
at
present.
The
directors
consider
that
a
surplus
over
book
value
exists,
but
have
not
quantified
the
excess.
Substantial
shareholding
and
controlling
interest
Details
of
a
controlling
interest
in
the
shares
of
the
Company
are
given
in
note
30
on
page
104.
Other
than
as
noted
above,
so
far
as
is
known,
no
other
person
holds
or
is
beneficially
interested
in
a
disclosable
interest
in
the
Company.
Power
to
issue
shares
At
the
last
annual
general
meeting,
held
on
5
December
2008,
authority
was
given
to
the
directors
to
allot
unissued
relevant
securities
in
the
Company
up
to
a
maximum
of
an
amount
equivalent
to
one
third
of
the
shares
in
issue
at
any
time
up
to
4
December
2013.
No
such
shares
have
been
issued.
The
directors
propose
to
renew
this
authority
at
the
annual
general
meeting
to
be
held
on
4
December
2009
for
the
following
year.
A
further
special
resolution
passed
at
that
meeting
granted
authority
to
the
directors
to
allot
equity
securities
in
the
Company
for
cash,
without
regard
to
the
pre-emption
provisions
of
the
Companies
Act
1985.
This
authority
expires
on
the
date
of
the
annual
general
meeting
to
be
held
on
4
December
2009
and
the
directors
will
seek
to
renew
this
authority
for
the
following
year.
Power
to
purchase
the
Company’s
own
shares
is
also
provided
in
the
Articles
subject
to
statutory
provisions.
The
Company
has
no
existing
authority
to
purchase
its
own
shares.
Appointment
of
directors
The
Company’s
Articles
of
Association
(the
‘Articles’)
give
the
directors
power
to
appoint
and
replace
directors.
Under
the
terms
of
reference
of
the
Nomination
committee,
any
appointment
must
be
recommended
by
the
Nomination
committee
for
approval
by
the
board
of
directors.
The
Articles
also
require
the
directors
to
retire
and
submit
themselves
for
election
at
the
first
annual
general
meeting
following
appointment
and
all
directors
who
held
office
at
the
time
of
the
two
preceding
annual
general
meetings,
and
in
any
event
not
less
than
one
third
of
the
directors,
to
submit
themselves
for
re-election.
In
accordance
with
the
Combined
Code,
all
non-executive
directors
who
have
served
for
more
than
nine
years
must
also
submit
themselves
for
election
on
an
annual
basis.
Articles
of
Association
The
Articles
themselves
may
be
amended
by
special
resolution
of
the
shareholders.
Power
of
the
directors
The
directors
are
responsible
for
managing
the
business
of
the
Company
and
may
exercise
all
the
powers
of
the
Company
subject
to
the
provisions
of
relevant
statutes,
to
any
directions
given
by
special
resolution
and
to
the
Company’s
Memorandum
and
Articles.
The
Articles,
for
example,
contain
specific
provisions
and
restrictions
concerning
the
Company’s
power
to
borrow
money.
As
indicated
above,
powers
relating
to
the
issuing
of
shares
are
also
included
in
the
Articles
and
such
authorities
are
renewed
by
shareholders
at
the
annual
general
meeting
each
year.
Other
disclosures
continued
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
50
Directors’
report
//
Governance
//
Other
disclosures
Significant
agreements
The
group
has
a
number
of
borrowing
facilities
provided
by
various
banking
groups.
These
facility
agreements
generally
include
change
of
control
provisions
which,
in
the
event
of
a
change
in
ownership
of
the
Company,
could
result
in
their
renegotiation
or
withdrawal.
The
most
significant
agreements
are
the
US$1.2bn
syndicated
loan
facility
which
was
signed
on
12
October
2006
and
under
which
£211m
was
drawn
down
at
the
year
end,
the
£320m
syndicated
loan
facility
which
was
signed
on
14
October
2008
and
under
which
no
funds
were
drawn
down
at
the
year
end
and
the
£120m
Finance
Contract
from
the
European
Investment
Bank
which
was
signed
on
5
December
2007
and
under
which
£120m
was
drawn
down
at
the
year
end.
In
addition
to
these
bank
facilities,
in
March
2009
the
Company
issued
US$610m
of
private
placement
notes
to
institutional
investors.
In
accordance
with
the
scheduled
maturities,
no
repayment
of
these
notes
had
taken
place
by
the
year
end.
In
the
event
of
a
change
in
ownership
of
the
Company,
the
Company
is
obliged
to
make
an
offer
of
immediate
repayment
to
the
note
holders.
There
are
a
number
of
other
agreements
that
take
effect,
alter
or
terminate
upon
a
change
of
control
of
the
Company
following
a
takeover
bid,
such
as
commercial
contracts
and
joint
venture
agreements.
None
is
considered
to
be
significant
in
terms
of
its
potential
impact
on
the
business
of
the
group
as
a
whole.
Essential
contracts
or
arrangements
Individual
companies
in
the
group
have
contractual
and
other
arrangements
with
many
third
parties
in
support
of
the
group’s
businesses
activities.
Such
contracts
and
arrangements
may
be
deemed
essential
to
one
or
more
operating
companies
but
there
are
no
contracts
or
arrangements
considered
to
be
essential
to
the
group
as
a
whole.
Through
the
British
Sugar
IPA
Agreement
via
the
National
Farmers
Union,
approximately
1,000
individual
contracts
with
sugar
beet
growers
are
created.
Further
information
Further
information
that
fulfils
the
requirements
of
Part
6
of
the
Large
and
Medium-sized
Companies
and
Groups
(Accounts
and
Reports)
Regulations
2008
and
which
should
be
treated
as
forming
part
of
this
report
by
reference
are
included
in
the
following
sections
of
the
annual
report:
details
of
the
structure
of
the
Company’s
share
capital
and
the
rights
attached
to
the
Company’s
shares
set
out
on
page
85;
and
details
of
the
employee
share
scheme
set
out
on
pages
88
and
89.
Disclosure
of
information
to
auditors
The
directors
who
held
office
at
the
date
of
approval
of
this
Directors’
report
confirm
that,
so
far
as
they
are
each
aware,
there
is
no
relevant
audit
information
of
which
the
Company’s
auditors
are
unaware;
and
each
director
has
taken
all
the
steps
that
he
ought
to
have
taken
as
a
director
to
make
himself
aware
of
any
relevant
audit
information
and
to
establish
that
the
Company’s
auditors
are
aware
of
that
information.
For
these
purposes,
relevant
audit
information
means
information
needed
by
the
Company’s
auditors
in
connection
with
the
preparation
of
their
report
on
page
53.
Auditors
In
accordance
with
section
489
of
the
Companies
Act
2006,
a
resolution
for
the
reappointment
of
KPMG
Audit
Plc
as
auditors
of
the
Company
is
to
be
proposed
at
the
forthcoming
annual
general
meeting.
Directors
The
names
of
the
persons
who
were
directors
of
the
Company
during
the
financial
year
and
as
at
3
November
2009
appear
on
pages
28
and
29,
other
than
Martin
Adamson
who
retired
from
the
board
and
as
Chairman
on
21
April
2009.
Charles
Sinclair
was
appointed
as
a
non-executive
director
on
1
October
2008
and
as
Chairman
on
21
April
2009.
Also
in
accordance
with
the
Articles
and
the
Combined
Code
on
Corporate
Governance,
Galen
Weston,
who
has
served
for
more
than
nine
years,
Lord
Jay,
Javier
Ferrán
and
Tim
Clarke
retire
from
the
board.
These
directors,
being
eligible,
offer
themselves
for
re-election
at
the
annual
general
meeting.
Directors’
indemnities
Three
directors
of
operating
subsidiaries
benefited
from
qualifying
third-party
indemnity
provisions
provided
by
the
Company’s
wholly
owned
subsidiary,
ABF
Investments
plc,
during
the
financial
year
and
at
the
date
of
this
report.
Directors’
report
//
Governance
//
Other
disclosures
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
51
Directors’
responsibility
statement
The
financial
statements,
prepared
in
accordance
with
International
Financial
Reporting
Standards
as
adopted
by
the
EU,
give
a
true
and
fair
view
of
the
assets,
liabilities,
financial
position
and
profit
of
the
Company
and
the
undertakings
included
in
the
consolidation
taken
as
a
whole;
and
Pursuant
to
the
Disclosure
and
Transparency
Rules,
Chapter
4,
the
following
sections
of
the
Company’s
annual
report
contain
a
fair
review
of
the
development
and
performance
of
the
business
and
the
position
of
the
Company,
and
the
undertakings
included
in
the
consolidation
taken
as
a
whole,
together
with
a
description
of
the
principal
risks
and
uncertainties
that
they
face:
1.
The
Chairman’s
statement
on
pages
4
and
5;
2.
Operating
review
on
pages
6
to
23,
which
includes
a
review
of
the
external
environment,
key
strategic
aims,
future
development
and
performance
measures;
3.
Financial
review
on
pages
24
and
25;
4.
Other
disclosures:
‘Research
and
development’;
5.
Other
disclosures:
‘Financial
instruments’;
6.
Other
disclosures:
‘Property,
plant
&
equipment’;
7.
Other
disclosures:
‘Power
of
the
directors’;
and
8.
Other
disclosures:
‘Principal
risks
and
uncertainties’.
On
behalf
of
the
board
Charles
Sinclair
George
Weston
John
Bason
Chairman
Chief
Executive
Finance
Director
3
November
2009
Statement
of
directors’
responsibilities
in
respect
of
the
annual
report
and
the
financial
statements
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
52
Directors’
report
//
Governance
//
Statement
of
directors’
responsibilities
in
respect
of
the
annual
report
and
the
financial
statements
The
directors
are
responsible
for
preparing
the
annual
report
and
the
group
and
parent
company
financial
statements
in
accordance
with
applicable
law
and
regulations.
Company
law
requires
the
directors
to
prepare
group
and
parent
company
financial
statements
for
each
financial
year.
Under
that
law
they
are
required
to
prepare
the
group
financial
statements
in
accordance
with
IFRSs
as
adopted
by
the
EU
and
applicable
law
and
have
elected
to
prepare
the
parent
company
financial
statements
in
accordance
with
UK
Accounting
Standards
and
applicable
law
(UK
Generally
Accepted
Accounting
Practice).
Under
company
law
the
directors
must
not
approve
the
financial
statements
unless
they
are
satisfied
that
they
give
a
true
and
fair
view
of
the
state
of
affairs
of
the
group
and
parent
company
and
of
their
profit
or
loss
for
that
period.
In
preparing
each
of
the
group
and
parent
company
financial
statements,
the
directors
are
required
to:
select
suitable
accounting
policies
and
then
apply
them
consistently;
make
judgements
and
estimates
that
are
reasonable
and
prudent;
for
the
group
financial
statements,
state
whether
they
have
been
prepared
in
accordance
with
IFRSs
as
adopted
by
the
EU;
for
the
parent
company
financial
statements,
state
whether
applicable
UK
Accounting
Standards
have
been
followed,
subject
to
any
material
departures
disclosed
and
explained
in
the
parent
company
financial
statements;
and
prepare
the
financial
statements
on
the
going
concern
basis
unless
it
is
inappropriate
to
presume
that
the
group
and
the
parent
company
will
continue
in
business.
The
directors
are
responsible
for
keeping
adequate
accounting
records
that
are
sufficient
to
show
and
explain
the
parent
company’s
transactions
and
disclose
with
reasonable
accuracy
at
any
time
the
financial
position
of
the
parent
company
and
enable
them
to
ensure
that
its
financial
statements
comply
with
the
Companies
Act
2006.
They
have
general
responsibility
for
taking
such
steps
as
are
reasonably
open
to
them
to
safeguard
the
assets
of
the
group
and
to
prevent
and
detect
fraud
and
other
irregularities.
Under
applicable
law
and
regulations,
the
directors
are
also
responsible
for
preparing
a
Directors’
report,
Remuneration
report
and
Corporate
governance
report
that
complies
with
that
law
and
those
regulations.
The
directors
are
responsible
for
the
maintenance
and
integrity
of
the
corporate
and
financial
information
included
on
the
Company’s
website.
Legislation
in
the
UK
governing
the
preparation
and
dissemination
of
financial
statements
may
differ
from
legislation
in
other
jurisdictions.
Directors’
report
//
Governance
//
Independent
auditors’
report
Independent
auditors’
report
to
the
members
of
Associated
British
Foods
plc
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
53
We
have
audited
the
group
and
parent
company
financial
statements
(‘the
financial
statements’)
of
Associated
British
Foods
plc
for
the
year
ended
12
September
2009
which
comprise
the
consolidated
income
statement,
the
consolidated
and
parent
company
balance
sheets,
the
consolidated
cash
flow
statement,
the
consolidated
statement
of
recognised
income
and
expense,
the
parent
company
reconciliation
of
movements
in
equity
shareholders’
funds
and
the
related
notes.
The
financial
reporting
framework
that
has
been
applied
in
the
preparation
of
the
group
financial
statements
is
applicable
law
and
International
Financial
Reporting
Standards
(IFRSs)
as
adopted
by
the
EU.
The
financial
reporting
framework
that
has
been
applied
in
the
preparation
of
the
parent
company
financial
statements
is
applicable
law
and
UK
Accounting
Standards
(UK
Generally
Accepted
Accounting
Practice).
This
report
is
made
solely
to
the
Company’s
members,
as
a
body,
in
accordance
with
sections
495,
496
and
497
of
the
Companies
Act
2006.
Our
audit
work
has
been
undertaken
so
that
we
might
state
to
the
Company’s
members
those
matters
we
are
required
to
state
to
them
in
an
auditors’
report
and
for
no
other
purpose.
To
the
fullest
extent
permitted
by
law,
we
do
not
accept
or
assume
responsibility
to
anyone
other
than
the
Company
and
the
Company’s
members,
as
a
body,
for
our
audit
work,
for
this
report,
or
for
the
opinions
we
have
formed.
Respective
responsibilities
of
directors
and
auditors
As
explained
more
fully
in
the
Statement
of
directors’
responsibilities
in
respect
of
the
annual
report
and
the
financial
statements
set
out
on
page
52,
the
directors
are
responsible
for
the
preparation
of
the
financial
statements
and
for
being
satisfied
that
they
give
a
true
and
fair
view.
Our
responsibility
is
to
audit
the
financial
statements
in
accordance
with
applicable
law
and
International
Standards
on
Auditing
(UK
and
Ireland).
Those
standards
require
us
to
comply
with
the
Auditing
Practices
Board’s
(APB’s)
Ethical
Standards
for
Auditors.
Scope
of
the
audit
of
the
financial
statements
A
description
of
the
scope
of
an
audit
of
financial
statements
is
provided
on
the
APB’s
website
at
www.frc.org.uk/apb/scope/UKP
Opinion
on
financial
statements
In
our
opinion:
the
financial
statements
give
a
true
and
fair
view
of
the
state
of
the
group’s
and
of
the
parent
company’s
affairs
as
at
12
September
2009
and
of
the
group’s
profit
for
the
year
then
ended;
the
group
financial
statements
have
been
properly
prepared
in
accordance
with
IFRSs
as
adopted
by
the
EU;
the
parent
company
financial
statements
have
been
properly
prepared
in
accordance
with
UK
Generally
Accepted
Accounting
Practice;
and
the
financial
statements
have
been
prepared
in
accordance
with
the
requirements
of
the
Companies
Act
2006;
and,
as
regards
the
group
financial
statements,
Article
4
of
the
IAS
Regulation.
Opinion
on
other
matters
prescribed
by
the
Companies
Act
2006
In
our
opinion:
the
part
of
the
Remuneration
report
to
be
audited
has
been
properly
prepared
in
accordance
with
the
Companies
Act
2006;
and
the
information
given
in
the
Directors’
report
for
the
financial
year
for
which
the
financial
statements
are
prepared
is
consistent
with
the
financial
statements.
Matters
on
which
we
are
required
to
report
by
exception
We
have
nothing
to
report
in
respect
of
the
following:
Under
the
Companies
Act
2006
we
are
required
to
report
to
you
if,
in
our
opinion:
adequate
accounting
records
have
not
been
kept
by
the
parent
company,
or
returns
adequate
for
our
audit
have
not
been
received
from
branches
not
visited
by
us;
or
the
parent
company
financial
statements
and
the
part
of
the
Remuneration
report
to
be
audited
are
not
in
agreement
with
the
accounting
records
and
returns;
or
certain
disclosures
of
directors’
remuneration
specified
by
law
are
not
made;
or
we
have
not
received
all
the
information
and
explanations
we
require
for
our
audit.
Under
the
Listing
Rules
we
are
required
to
review:
the
directors’
statement,
set
out
on
page
52,
in
relation
to
going
concern;
and
the
part
of
the
Corporate
governance
statement
relating
to
the
Company’s
compliance
with
the
nine
provisions
of
the
June
2008
Combined
Code
specified
for
our
review.
Stephen
Oxley
for
and
on
behalf
of
KPMG
Audit
Plc
Chartered
Accountants
Statutory
Auditor
8
Salisbury
Square
London
EC4Y
8BB
3
November
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
54
Financial
statements
//
Consolidated
financial
statements
//
Consolidated
income
statement
Consolidated
income
statement
for
the
year
ended
12
September
2009
2009
2008
continuing
operations
Note
£m
£m
revenue
1
9,255
8,235
Operating
costs
before
exceptional
items
2
(8,639)
(7,660)
Exceptional
items
1
2
(46)
616
529
Share
of
profit
after
tax
from
joint
ventures
and
associates
11
10
15
Profits
less
losses
on
sale
of
property,
plant
&
equipment
(1)
10
operating
profit
625
554
Adjusted
operating
profit
1
720
664
Profits
less
losses
on
sale
of
property,
plant
&
equipment
(1)
10
Amortisation
of
non-operating
intangibles
8
(82)
(74)
Inventory
fair
value
adjustment
22
(12)
Exceptional
items
(46)
Profits
less
losses
on
sale
and
closure
of
businesses
22
(65)
5
profit
before
interest
560
559
Finance
income
4
17
21
Finance
expense
4
(95)
(74)
Other
financial
income
4
13
21
profit
before
taxation
495
527
Adjusted
profit
before
taxation
655
632
Profits
less
losses
on
sale
of
property,
plant
&
equipment
(1)
10
Amortisation
of
non-operating
intangibles
(82)
(74)
Inventory
fair
value
adjustment
(12)
Exceptional
items
(46)
Profits
less
losses
on
sale
and
closure
of
businesses
(65)
5
Taxation
UK
(excluding
tax
on
exceptional
items)
(71)
(50)
UK
(on
exceptional
items)
(14)
Overseas
(excluding
tax
on
exceptional
items)
(41)
(92)
Overseas
(on
exceptional
items)
20
5
(112)
(136)
profit
for
the
period
383
391
attributable
to
Equity
shareholders
359
357
Minority
interests
24
34
profit
for
the
period
383
391
Basic
and
diluted
earnings
per
ordinary
share
(pence)
7
45.5
45.2
Dividends
per
share
paid
and
proposed
for
the
year
(pence)
6
21.0
20.25
1
Refer
to
accounting
policy
on
page
59.
Financial
statements
//
Consolidated
financial
statements
//
Consolidated
balance
sheet
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
55
Consolidated
balance
sheet
at
12
September
2009
2009
2008
Note
£m
£m
non-current
assets
Intangible
assets
8
1,913
1,815
Property,
plant
&
equipment
9
3,519
3,110
Biological
assets
10
92
66
Investments
in
joint
ventures
11
122
75
Investments
in
associates
11
32
23
Employee
benefits
assets
12
16
106
Deferred
tax
assets
13
184
101
Other
receivables
14
140
75
total
non-current
assets
6,018
5,371
current
assets
Assets
classified
as
held
for
sale
15
136
19
Inventories
16
1,262
1,042
Biological
assets
10
101
80
Trade
and
other
receivables
14
1,121
1,228
Other
financial
assets
25
12
63
Cash
and
cash
equivalents
17
383
348
total
current
assets
3,015
2,780
total
assets
9,033
8,151
current
liabilities
Liabilities
classified
as
held
for
sale
15
(26)
Interest-bearing
loans
and
overdrafts
18
(584)
(278)
Trade
and
other
payables
19
(1,413)
(1,365)
Other
financial
liabilities
25
(76)
(25)
Income
tax
(113)
(89)
Provisions
20
(248)
(85)
total
current
liabilities
(2,460)
(1,842)
non-current
liabilities
Interest-bearing
loans
18
(806)
(870)
Provisions
20
(173)
(101)
Deferred
tax
liabilities
13
(396)
(449)
Employee
benefits
liabilities
12
(122)
(45)
total
non-current
liabilities
(1,497)
(1,465)
total
liabilities
(3,957)
(3,307)
net
assets
5,076
4,844
equity
Issued
capital
21
47
47
Other
reserves
21
173
173
Translation
reserve
21
439
221
Hedging
reserve
21
(32)
25
Retained
earnings
21
4,121
4,088
4,748
4,554
Minority
interests
21
328
290
total
equity
5,076
4,844
The
financial
statements
on
pages
54
to
106
were
approved
by
the
board
of
directors
on
3
November
2009
and
were
signed
on
its
behalf
by:
Charles
Sinclair
,
Chairman
and
John
Bason
,
Director
.
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
56
Financial
statements
//
Consolidated
financial
statements
//
Consolidated
cash
flow
statement
Consolidated
cash
flow
statement
for
the
year
ended
12
September
2009
2009
2008
£m
£m
cash
flow
from
operating
activities
Profit
before
taxation
495
527
Profits
less
losses
on
sale
of
property,
plant
&
equipment
1
(10)
Profits
less
losses
on
sale
and
closure
of
businesses
65
(5)
Inventory
fair
value
adjustment
12
Exceptional
items
46
Finance
income
(17)
(21)
Finance
expense
95
74
Other
financial
income
(13)
(21)
Share
of
profit
after
tax
from
joint
ventures
and
associates
(10)
(15)
Amortisation
85
76
Depreciation
290
234
Change
in
the
fair
value
of
biological
assets
(90)
(84)
Share-based
payment
expense
5
5
Pension
costs
less
contributions
(40)
(18)
Decrease/(increase)
in
inventories
58
(103)
Decrease/(increase)
in
receivables
159
(156)
(Decrease)/increase
in
payables
(100)
149
Purchases
less
sales
of
current
biological
assets
(7)
(9)
Decrease
in
provisions
(20)
(6)
Cash
generated
from
operations
968
663
Income
taxes
paid
(135)
(110)
net
cash
from
operating
activities
833
553
cash
flows
from
investing
activities
Dividends
received
from
joint
ventures
3
1
Dividends
received
from
associates
1
1
Purchase
of
property,
plant
&
equipment
(545)
(502)
Purchase
of
intangibles
(24)
(70)
Purchase
of
non-current
biological
assets
(10)
(3)
Sale
of
property,
plant
&
equipment
19
30
Quota
renunciation
compensation
101
Purchase
of
subsidiaries,
joint
ventures
and
associates
(266)
(211)
Sale
of
subsidiaries,
joint
ventures
and
associates
145
59
Loans
to
joint
ventures
(52)
Purchase
of
minority
interests
(2)
(10)
Purchase
of
other
investments
(4)
(3)
Interest
received
12
19
net
cash
from
investing
activities
(622)
(689)
cash
flows
from
financing
activities
Dividends
paid
to
minorities
(23)
(21)
Dividends
paid
to
shareholders
(161)
(156)
Interest
paid
(89)
(74)
Decrease/(increase)
in
other
current
investments
12
(7)
Financing:
Increase
in
short-term
loans
283
59
(Decrease)/increase
in
long-term
loans
(100)
182
Sale
of
shares
in
subsidiary
undertakings
to
minority
interests
19
Movements
from
changes
in
own
shares
held
(15)
(3)
net
cash
from
financing
activities
(74)
(20)
net
increase/(decrease)
in
cash
and
cash
equivalents
137
(156)
Cash
and
cash
equivalents
at
the
beginning
of
the
period
210
349
Effect
of
movements
in
foreign
exchange
14
17
cash
and
cash
equivalents
at
the
end
of
the
period
361
210
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
57
Consolidated
statement
of
recognised
income
and
expense
for
the
year
ended
12
September
2009
2009
2008
£m
£m
Actuarial
losses
on
defined
benefit
schemes
(217)
(254)
Deferred
tax
associated
with
defined
benefit
schemes
62
71
Effect
of
movements
in
foreign
exchange
270
360
Net
loss
on
hedge
of
net
investment
in
foreign
subsidiaries
(27)
(58)
Deferred
tax
associated
with
movements
in
foreign
exchange
1
(3)
Current
tax
associated
with
movements
in
foreign
exchange
(4)
Movement
in
cash
flow
hedging
position
(81)
34
Deferred
tax
associated
with
movement
in
cash
flow
hedging
position
18
(7)
Share
of
recognised
income
and
expense
of
joint
ventures
and
associates
(1)
(1)
Net
gain
recognised
directly
in
equity
21
142
Profit
for
the
period
383
391
total
recognised
income
and
expense
for
the
period
404
533
attributable
to:
Equity
shareholders
361
466
Minority
interests
43
67
404
533
Financial
statements
//
Consolidated
financial
statements
//
Consolidated
statement
of
recognised
income
and
expense
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
58
Financial
statements
//
Significant
accounting
policies
Significant
accounting
policies
for
the
year
ended
12
September
2009
Associated
British
Foods
plc
(‘the
Company’)
is
a
company
domiciled
in
the
United
Kingdom.
The
consolidated
financial
statements
of
the
Company
for
the
year
ended
12
September
2009
comprise
those
of
the
Company
and
its
subsidiaries
(together
referred
to
as
‘the
group’)
and
the
group’s
interest
in
associates
and
jointly
controlled
entities.
The
financial
statements
were
authorised
for
issue
by
the
directors
on
3
November
2009.
The
consolidated
financial
statements
have
been
prepared
and
approved
by
the
directors
in
accordance
with
International
Financial
Reporting
Standards
as
adopted
by
the
EU
(‘Adopted
IFRS’).
The
Company
has
elected
to
prepare
its
parent
company
financial
statements
under
UK
Generally
Accepted
Accounting
Practice.
These
are
presented
on
pages
107
to
111.
Basis
of
preparation
The
financial
statements
are
presented
in
sterling,
rounded
to
the
nearest
million.
They
are
prepared
on
the
historical
cost
basis
except
that
biological
assets
and
certain
financial
instruments
are
stated
at
their
fair
value.
Assets
classified
as
held
for
sale
are
stated
at
the
lower
of
carrying
amount
and
fair
value
less
costs
to
sell.
The
preparation
of
financial
statements
under
Adopted
IFRS
requires
management
to
make
judgements,
estimates
and
assumptions
about
the
reported
amounts
of
assets
and
liabilities,
income
and
expenses
and
the
disclosure
of
contingent
assets
and
liabilities.
The
estimates
and
associated
assumptions
are
based
on
experience.
Actual
results
may
differ
from
these
estimates.
Judgements
made
by
management
in
the
application
of
Adopted
IFRS
that
have
a
significant
effect
on
the
financial
statements,
and
estimates
with
a
significant
risk
of
material
adjustment
next
year,
are
discussed
in
note
31.
The
estimates
and
underlying
assumptions
are
reviewed
on
a
regular
basis.
Revisions
to
accounting
estimates
are
recognised
from
the
period
in
which
the
estimates
are
revised.
The
accounting
policies
set
out
below
have
been
applied
to
all
periods
presented.
Details
of
new
accounting
standards
which
came
into
force
in
the
year
are
set
out
at
the
end
of
this
note.
None
of
them
required
restatement
of
primary
statements
in
comparative
periods,
nor
had
any
significant
impact
on
the
group’s
consolidated
results
or
financial
position.
The
financial
statements
of
the
group
are
prepared
for
the
52
weeks
ended
12
September
2009,
except
that,
to
avoid
delay
in
the
preparation
of
the
consolidated
financial
statements,
the
results
of
certain
subsidiaries
are
included
up
to
31
August
2009.
The
results
of
Illovo
are
included
for
the
period
to
30
September
2009
in
line
with
Illovo’s
local
reporting
date.
Adjustments
are
made
as
appropriate
for
significant
transactions
or
events
occurring
between
31
August
and
30
September.
Basis
of
consolidation
The
consolidated
financial
statements
include
the
results
of
the
Company
and
all
of
its
subsidiaries
from
the
date
that
control
commences
to
the
date
that
control
ceases.
The
consolidated
financial
statements
also
include
the
group’s
share
of
the
after-tax
results
of
its
jointly
controlled
entities
and
associates
on
an
equity-accounted
basis
from
the
point
at
which
joint
control
or
significant
influence
respectively
commences,
to
the
date
that
it
ceases.
Subsidiaries
are
entities
controlled
by
the
Company.
Control
exists
when
the
Company
has
the
power,
directly
or
indirectly,
to
govern
the
financial
and
operating
policies
of
an
entity
so
as
to
obtain
benefits
from
its
activities.
Jointly
controlled
entities
are
those
entities
over
whose
activities
the
group
has
joint
control,
typically
established
by
contractual
agreement.
Associates
are
those
entities
in
which
the
group
has
significant
influence,
but
not
control,
over
the
financial
and
operating
policies.
Business
combinations
On
the
acquisition
of
a
business
or
an
interest
in
a
joint
venture
or
associate,
fair
values
are
attributed
to
the
identifiable
assets,
liabilities
and
contingent
liabilities
acquired,
reflecting
conditions
at
the
date
of
acquisition.
Adjustments
to
fair
values
include
those
made
to
bring
accounting
policies
into
line
with
those
of
the
group.
Provisional
fair
values
subsequently
finalised
are
adjusted
by
restatement
of
the
comparative
period
in
which
the
acquisition
occurred.
Revenue
Revenue
represents
the
net
invoiced
value
of
goods
delivered
to
customers,
excluding
sales
taxes.
Revenue
is
recognised
when
the
risks
and
rewards
of
the
underlying
products
have
been
substantially
transferred
to
the
customer.
Revenue
is
stated
net
of
price
discounts,
certain
promotional
activities
and
similar
items.
Borrowing
costs
Borrowing
costs
are
accounted
for
on
an
accruals
basis
in
the
income
statement
using
the
effective
interest
method.
Financial
statements
//
Significant
accounting
policies
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
59
Exceptional
items
Exceptional
items
are
defined
as
items
of
income
and
expenditure
which
are
material
and
unusual
in
nature
and
which
are
considered
to
be
of
such
significance
that
they
require
separate
disclosure
on
the
face
of
the
income
statement
in
accordance
with
IAS
1.
Foreign
currencies
In
individual
companies,
transactions
in
foreign
currencies
are
recorded
at
the
rate
of
exchange
at
the
date
of
the
transaction.
Monetary
assets
and
liabilities
in
foreign
currencies
are
translated
at
the
rate
prevailing
at
the
balance
sheet
date.
Any
resulting
differences
are
taken
to
the
income
statement.
On
consolidation,
assets
and
liabilities
of
foreign
operations
that
are
denominated
in
foreign
currencies
are
translated
into
sterling
at
the
rate
of
exchange
at
the
balance
sheet
date.
Income
and
expense
items
are
translated
into
sterling
at
weighted
average
rates
of
exchange
other
than
substantial
transactions,
which
are
translated
at
the
rate
of
exchange
on
the
date
of
the
transaction.
Differences
arising
from
the
retranslation
of
opening
net
assets
of
group
companies,
together
with
differences
arising
from
the
restatement
of
the
net
results
of
group
companies
from
average
or
actual
rates
to
rates
at
the
balance
sheet
date,
are
taken
to
the
translation
reserve.
Pensions
and
other
post-employment
benefits
The
group’s
principal
pension
funds
are
defined
benefit
plans.
In
addition
the
group
has
defined
contribution
plans
and
other
unfunded
post-employment
liabilities.
For
defined
benefit
plans,
the
amount
charged
in
the
income
statement
is
the
cost
of
benefits
accruing
to
employees
over
the
year,
plus
any
benefit
improvements
granted
to
members
by
the
group
during
the
year.
It
also
includes
a
credit
equivalent
to
the
group’s
expected
return
on
pension
plan
assets
over
the
year,
offset
by
a
charge
equal
to
the
expected
interest
on
plan
liabilities
over
the
year.
For
each
of
the
group’s
plans,
the
difference
between
the
market
value
of
assets
and
the
present
value
of
liabilities
is
disclosed
as
an
asset
or
liability
in
the
consolidated
balance
sheet.
Any
related
deferred
tax
(to
the
extent
it
is
recoverable)
is
disclosed
separately
in
the
consolidated
balance
sheet.
Any
actuarial
gains
or
losses
are
recognised
immediately
in
the
statement
of
recognised
income
and
expense.
Surpluses
on
defined
benefit
plans
are
recognised
only
to
the
extent
that
they
are
recoverable.
Movements
in
irrecoverable
surpluses
are
recognised
immediately
as
an
actuarial
gain
or
loss
in
the
statement
of
recognised
income
and
expense.
Contributions
payable
by
the
group
in
respect
of
defined
contribution
plans
are
charged
to
operating
profit
as
incurred.
Other
unfunded
post-employment
liabilities
are
accounted
for
in
the
same
way
as
defined
benefit
pension
plans.
Share-based
payments:
employee
benefits
The
Share
Incentive
Plan
allows
executives
to
receive
allocations
of
shares
to
be
distributed
subject
to
attainment
of
certain
financial
performance
criteria
and
typically
after
a
three-year
performance
period.
The
fair
value
of
the
shares
to
be
awarded
is
recognised
as
an
employee
expense
with
a
corresponding
increase
in
equity.
The
fair
value
is
measured
at
grant
date
and
spread
over
the
period
during
which
the
executives
become
unconditionally
entitled
to
the
shares.
The
fair
value
of
the
shares
allocated
is
measured
taking
into
account
the
terms
and
conditions
under
which
the
shares
were
allocated.
The
amount
recognised
as
an
expense
is
adjusted
to
reflect
the
actual
number
of
shares
that
vest.
The
Share
Option
Scheme
(1994)
and
Executive
Share
Option
Scheme
(2000)
allow
executives
to
acquire
shares
of
the
Company.
The
fair
value
of
options
granted
is
recognised
as
an
employee
expense
with
a
corresponding
increase
in
equity.
The
fair
value
is
measured
at
grant
date
and
spread
over
the
period
during
which
the
executives
become
unconditionally
entitled
to
the
options.
The
fair
value
of
the
options
granted
is
measured
using
a
binomial
lattice
model,
taking
into
account
the
terms
and
conditions
upon
which
the
options
were
granted.
The
amount
recognised
as
an
expense
is
adjusted
to
reflect
the
actual
number
of
share
options
that
vest
except
where
forfeiture
is
only
due
to
share
prices
not
achieving
the
threshold
for
vesting.
Income
tax
Income
tax
on
the
profit
or
loss
for
the
period
comprises
current
and
deferred
tax.
Income
tax
is
recognised
in
the
income
statement
except
to
the
extent
that
it
relates
to
items
taken
directly
to
reserves.
Current
tax
is
the
tax
expected
to
be
payable
on
the
taxable
income
for
the
year,
using
tax
rates
enacted
or
substantively
enacted
at
the
balance
sheet
date,
together
with
any
adjustment
to
tax
payable
in
respect
of
previous
years.
Deferred
tax
is
provided
using
the
balance
sheet
liability
method,
providing
for
temporary
differences
between
the
carrying
amounts
of
assets
and
liabilities
for
financial
reporting
purposes
and
the
amounts
used
for
taxation
purposes.
The
following
temporary
differences
are
not
provided
for:
the
initial
recognition
of
goodwill;
the
initial
recognition
of
assets
or
liabilities
that
affect
neither
accounting
nor
taxable
profit
other
than
those
acquired
in
a
business
combination;
and
differences
relating
to
investments
in
subsidiaries
to
the
extent
that
they
will
probably
not
reverse
in
the
foreseeable
future.
The
amount
of
deferred
tax
provided
is
based
on
the
expected
manner
of
realisation
or
settlement
of
the
carrying
amount
of
assets
and
liabilities,
using
tax
rates
enacted
or
substantively
enacted
at
the
balance
sheet
date.
A
deferred
tax
asset
is
recognised
only
to
the
extent
that
it
is
probable
that
future
taxable
profits
will
be
available
against
which
the
asset
can
be
utilised.
Deferred
tax
assets
are
reduced
to
the
extent
that
it
is
no
longer
probable
that
the
related
tax
benefit
will
be
realised.
Additional
income
taxes
that
arise
from
the
distribution
of
dividends
are
recognised
at
the
same
time
as
the
liability
to
pay
the
related
dividend.
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
60
Financial
statements
//
Significant
accounting
policies
Significant
accounting
policies
continued
for
the
year
ended
12
September
2009
Financial
assets
and
liabilities
Financial
assets
and
financial
liabilities,
except
for
certain
non-current
other
receivables,
other
current
investments
and
derivative
financial
instruments,
are
measured
initially
at
fair
value,
plus
directly
attributable
transaction
costs,
and
thereafter
at
amortised
cost.
Certain
non-current
other
receivables
comprise
available-for-sale
investments
which
are
measured
at
market
prices
where
available.
Where
quoted
market
prices
in
an
active
market
are
not
available,
and
where
fair
value
cannot
be
reliably
measured,
unquoted
equity
instruments
are
measured
at
cost
less
impairment.
Other
current
investments
(classified
under
other
financial
assets)
are
designated
as
‘at
fair
value
through
profit
and
loss’
because
they
are
managed
and
their
performance
is
evaluated
on
a
fair
value
basis
in
accordance
with
the
group’s
risk
management
and
investment
strategy.
Cash
and
cash
equivalents
Cash
and
cash
equivalents
comprise
bank
and
cash
balances,
call
deposits
and
short-term
investments
with
original
maturities
of
three
months
or
less.
Bank
overdrafts
that
are
repayable
on
demand
and
form
an
integral
part
of
the
group’s
cash
management
are
included
as
a
component
of
cash
and
cash
equivalents
for
the
purposes
of
the
cash
flow
statement.
Derivative
financial
instruments
Derivative
financial
instruments
are
used
to
manage
the
group’s
economic
exposure
to
financial
and
commodity
risks.
The
principal
instruments
used
are
forward
foreign
exchange
contracts,
futures,
swaps
or
options
(the
‘hedging
instrument’).
The
group
does
not
use
derivative
financial
instruments
for
speculative
purposes.
Derivative
financial
instruments
are
recognised
in
the
balance
sheet,
within
other
financial
assets
and
liabilities,
at
fair
value
at
the
date
a
derivative
contract
is
entered
into,
and
are
subsequently
remeasured
to
fair
value
at
each
balance
sheet
date.
Fair
value
is
based
on
market
rates
or
calculated
using
either
discounted
cash
flow
or
option
pricing
models
consistently
applied
for
similar
types
of
instrument.
These
calculations
take
into
consideration
management’s
best
estimates
and
assumptions
based
on
market-related
data
at
the
balance
sheet
date.
The
gain
or
loss
on
subsequent
fair
value
measurement
is
recognised
in
the
income
statement
unless
the
derivative
qualifies
for
hedge
accounting,
when
recognition
of
any
resultant
gain
or
loss
depends
on
the
nature
of
the
item
being
hedged.
The
purpose
of
hedge
accounting
is
to
mitigate
the
impact
on
the
group’s
income
statement
of
changes
in
foreign
exchange
or
interest
rates
and
commodity
prices,
by
matching
the
impact
of
the
hedged
risk
and
the
hedging
instrument
in
the
income
statement.
Hedge
accounting
is
applied
to
derivatives
that
are
expected
to
be
effective
in
offsetting
the
changes
in
cash
flows
of
highly
probable
forecast
transactions
(the
‘hedged
item’).
To
qualify
for
hedge
accounting,
the
hedging
relationship
must
meet
several
conditions
with
respect
to
documentation,
probability
of
occurrence,
hedge
effectiveness
and
reliability
of
measurement.
At
inception
of
the
transaction,
the
group
documents
the
relationship
between
hedging
instruments
and
hedged
items,
as
well
as
the
risk
management
objective
and
strategy
for
undertaking
various
hedging
transactions.
This
includes
linking
all
derivatives
designated
as
hedges
to
specific
firm
commitments
or
forecast
transactions.
The
group
also
documents
its
assessment,
both
at
inception
and
at
least
quarterly
thereafter,
as
to
whether
the
derivatives
that
are
used
in
hedging
transactions
have
been,
and
are
likely
to
continue
to
be,
highly
effective.
Where
a
derivative
financial
instrument
is
designated
as
a
hedge
of
the
variability
in
cash
flows
of
a
highly
probable
forecast
transaction,
the
effective
part
of
the
gain
or
loss
on
the
derivative
financial
instrument
is
recognised
in
equity
in
the
hedging
reserve.
The
ineffective
part
of
the
gain
or
loss
is
recognised
immediately
within
operating
profit
in
the
income
statement.
When
the
forecast
transaction
results
in
the
recognition
of
a
non-financial
asset
or
liability,
the
associated
cumulative
gains
and
losses
previously
recognised
in
equity
are
included
in
the
initial
measurement
of
the
cost
of
the
asset
or
liability.
Otherwise,
gains
and
losses
previously
recognised
in
equity
are
removed
and
recognised
in
the
income
statement
at
the
same
time
as
the
hedged
transaction.
Hedge
accounting
is
discontinued
when
the
hedging
instrument
expires
or
is
sold,
terminated,
exercised
or
no
longer
qualifies
for
hedge
accounting.
At
that
time,
for
forecast
transactions,
any
cumulative
gain
or
loss
on
the
hedging
instrument
recognised
in
equity
is
retained
in
equity
until
the
forecast
transaction
occurs.
Gains
or
losses
on
hedging
instruments
that
relate
to
an
underlying
exposure
that
no
longer
exists
are
taken
directly
to
the
income
statement.
Hedges
of
the
group’s
net
investment
in
foreign
operations
take
the
form
of
borrowings
in
the
currency
of
the
investment’s
net
assets.
The
group
economically
hedges
foreign
currency
exposure
on
recognised
monetary
assets
and
liabilities
but
does
not
normally
seek
hedge
accounting
under
IAS
39.
Any
derivatives
that
the
group
holds
to
hedge
this
exposure
are
classified
as
‘held
for
trading’
within
other
financial
assets
and
liabilities.
Changes
in
the
fair
value
of
such
derivatives
and
the
foreign
exchange
gains
and
losses
arising
on
the
related
monetary
items
are
recognised
within
operating
profit
in
the
income
statement.
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
61
Financial
statements
//
Significant
accounting
policies
Intangible
assets
other
than
goodwill
Non-operating
intangible
assets
are
intangible
assets
that
arise
on
business
combinations
and
typically
include
intellectual
property,
brands,
customer
relationships
and
grower
agreements.
Operating
intangible
assets
are
intangible
assets
acquired
in
the
ordinary
course
of
business
and
typically
include
software
costs
and
expenditure
in
relation
to
the
purchase
of
additional
sugar
quota.
Intangible
assets
other
than
goodwill
that
have
a
finite
life
are
stated
at
cost
less
accumulated
amortisation
and
impairment
charges.
Intangible
assets
other
than
goodwill
that
do
not
have
a
finite
life
are
stated
at
cost
less
impairment
charges
and
are
subject
to
an
annual
impairment
test.
Amortisation
is
charged
to
the
income
statement
within
operating
costs
on
a
straight-line
basis
over
the
estimated
useful
lives
of
intangible
assets
from
the
date
they
are
available
for
use.
The
estimated
useful
lives
are
generally
deemed
to
be
no
longer
than:
Customer
relationships
up
to
5
years
Grower
agreements
up
to
10
years
Technology
and
brands
up
to
15
years
Goodwill
All
business
combinations
are
accounted
for
by
applying
the
acquisition
method.
In
respect
of
business
acquisitions
that
have
occurred
since
3
September
2004,
goodwill
represents
the
excess
of
the
purchase
consideration
over
the
fair
value
of
the
net
identifiable
assets
acquired,
including
separately
identified
intangible
assets.
In
respect
of
acquisitions
prior
to
this
date,
goodwill
is
included
on
the
basis
of
its
deemed
cost,
represented
by
the
net
book
value
recorded
under
previous
GAAP.
The
classification
and
accounting
treatment
of
business
combinations
that
occurred
prior
to
3
September
2004
was
not
reconsidered
on
transition
to
IFRS.
Certain
commercial
assets
associated
with
the
acquisition
of
a
business
are
not
capable
of
being
recognised
in
the
acquisition
balance
sheet.
In
such
circumstances,
goodwill
is
recognised,
which
may
include,
but
is
not
necessarily
limited
to,
workforce
assets
and
the
benefits
of
expected
future
synergies.
Goodwill
is
not
amortised
but
is
subject
to
an
annual
impairment
test.
Research
and
development
Expenditure
on
research
activities,
undertaken
with
the
prospect
of
gaining
new
scientific
or
technical
knowledge
and
understanding,
is
recognised
as
an
expense
in
the
income
statement
as
incurred.
Expenditure
on
development
activities,
whereby
research
findings
are
applied
to
a
plan
or
design
for
the
production
of
new
or
substantially
improved
products
and
processes,
is
capitalised
if
the
product
or
process
is
technically
and
commercially
feasible
and
the
group
has
sufficient
resources
to
complete
development.
The
expenditure
capitalised
includes
the
cost
of
materials,
direct
labour
and
an
appropriate
proportion
of
overheads.
Other
development
expenditure
is
recognised
in
the
income
statement
as
incurred.
Capitalised
development
expenditure
is
stated
at
cost
less
accumulated
amortisation
and
impairment
charges.
Impairment
The
carrying
amounts
of
the
group’s
intangible
assets
and
property,
plant
&
equipment
are
reviewed
at
each
balance
sheet
date
to
determine
whether
there
is
any
indication
of
impairment.
If
any
such
indication
exists,
the
asset’s
recoverable
amount
is
estimated.
For
goodwill
and
intangibles
without
a
finite
life,
the
recoverable
amount
is
estimated
at
each
balance
sheet
date.
An
impairment
charge
is
recognised
whenever
the
carrying
amount
of
an
asset
or
its
cash-generating
unit
exceeds
its
recoverable
amount.
Impairment
charges
are
recognised
in
the
income
statement
within
operating
costs.
Impairment
charges
recognised
in
respect
of
cash-generating
units
are
allocated
first
to
reduce
the
carrying
amount
of
any
goodwill
allocated
to
a
cash-generating
unit
(or
group
of
units)
and
then
to
reduce
the
carrying
amount
of
the
other
assets
in
the
unit
(or
group
of
units)
on
a
pro
rata
basis.
Calculation
of
recoverable
amount
The
recoverable
amount
of
assets
is
the
greater
of
their
fair
value
less
costs
to
sell
and
value
in
use.
In
assessing
value
in
use,
the
estimated
future
cash
flows
are
discounted
to
their
present
value
using
a
pre-tax
discount
rate
that
reflects
current
market
assessments
of
the
time
value
of
money
and
the
risks
specific
to
the
asset.
For
an
asset
that
does
not
generate
largely
independent
cash
inflows,
the
recoverable
amount
is
determined
for
the
cash-generating
unit
to
which
the
asset
belongs.
Reversals
of
impairment
An
impairment
charge
in
respect
of
goodwill
is
not
subsequently
reversed.
In
respect
of
other
assets,
an
impairment
charge
is
reversed
if
there
has
been
a
change
in
the
estimates
used
to
determine
recoverable
amount.
An
impairment
charge
is
reversed
only
to
the
extent
that
the
asset’s
carrying
amount
does
not
exceed
the
carrying
amount
that
would
have
been
determined,
net
of
depreciation
or
amortisation,
if
no
impairment
charge
had
been
recognised.
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
62
Financial
statements
//
Significant
accounting
policies
Significant
accounting
policies
continued
for
the
year
ended
12
September
2009
Property,
plant
&
equipment
Items
of
property,
plant
&
equipment
are
stated
at
cost
less
accumulated
depreciation
and
impairment
charges.
Depreciation
is
charged
to
the
income
statement
on
a
straight-line
basis
over
the
estimated
useful
lives
of
items
of
property,
plant
&
equipment
sufficient
to
reduce
them
to
their
estimated
residual
value.
Land
is
not
depreciated.
The
estimated
useful
lives
are
generally
deemed
to
be
no
longer
than:
Freehold
buildings
66
years
Plant
&
equipment,
fixtures
and
fittings
sugar
factories,
yeast
plants
and
mills
20
years
other
operations
12
years
Vehicles
10
years
Leases
A
lease
is
defined
as
an
agreement
whereby
the
lessor
conveys
to
the
lessee,
in
return
for
a
payment
or
a
series
of
payments,
the
right
to
use
a
specific
asset
for
an
agreed
period
of
time.
Where
the
group
is
a
lessee
and
has
substantially
all
the
risks
and
rewards
of
ownership
of
an
asset,
the
arrangement
is
considered
a
finance
lease.
Finance
leases
are
recognised
as
assets
of
the
group
within
property,
plant
&
equipment
at
the
inception
of
the
lease
at
the
lower
of
fair
value
and
the
present
value
of
the
minimum
lease
payments.
Depreciation
on
leased
assets
is
charged
to
the
income
statement
on
the
same
basis
as
owned
assets.
Payments
made
under
finance
leases
are
apportioned
between
capital
repayments
and
interest
expense
charged
to
the
income
statement.
Other
leases
where
the
group
is
a
lessee
are
treated
as
operating
leases.
Payments
made
under
operating
leases
are
recognised
in
the
income
statement
on
a
straight-line
basis
over
the
term
of
the
lease.
The
benefit
of
lease
incentives
is
recognised
in
the
income
statement
on
a
straight-line
basis
over
the
life
of
the
lease.
Where
the
group
is
a
lessor
and
has
transferred
substantially
all
the
risks
and
rewards
of
ownership
of
an
asset
to
a
lessee,
the
arrangement
is
considered
a
finance
lease.
For
finance
leases,
capital
amounts
due
from
lessees
are
recognised
as
financial
assets
of
the
group
within
trade
and
other
receivables
at
the
inception
of
the
lease
at
the
amount
of
the
net
investment
in
the
lease
after
making
provision
for
bad
and
doubtful
debts.
Payments
received
under
finance
leases
are
apportioned
between
capital
repayments
and
interest
income
credited
to
the
income
statement.
Other
leases
where
the
group
is
a
lessor
are
treated
as
operating
leases.
For
operating
leases,
the
asset
is
capitalised
within
property,
plant
&
equipment
and
depreciated
over
its
useful
economic
life.
Payments
received
under
operating
leases
are
recognised
in
the
income
statement
on
a
straight-line
basis
over
the
term
of
the
lease.
Biological
assets
Biological
assets
are
measured
at
fair
value
less
costs
to
sell.
Cane
roots
and
growing
cane
are
stated
at
fair
value
determined
on
the
following
bases:
Cane
roots
the
escalated
average
cost,
using
appropriate
inflation-related
indices,
of
each
year
of
planting
adjusted
for
the
remaining
expected
life.
Expected
useful
lives
are
currently
ten
years
in
South
Africa,
seven
years
in
Zambia
and
eight
years
in
each
of
the
other
countries
of
operation.
Growing
cane
the
estimated
sucrose
content
valued
at
the
estimated
sucrose
price
for
the
following
season,
less
the
estimated
costs
for
harvesting
and
transport.
When
harvested,
growing
cane
is
transferred
to
inventory
at
fair
value
less
costs
to
sell.
Inventories
Inventories
are
stated
at
the
lower
of
cost
and
net
realisable
value.
Cost
includes
raw
materials,
direct
labour
and
expenses,
an
appropriate
proportion
of
production
and
other
overheads,
but
not
borrowing
costs.
Cost
is
calculated
on
a
first-in
first-out
basis.
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
63
Financial
statements
//
Significant
accounting
policies
New
accounting
policies
The
following
interpretations
issued
by
the
International
Financial
Reporting
Interpretations
Committee
(‘IFRIC’)
are
effective
for
the
first
time
in
the
current
financial
year
and
have
been
adopted
by
the
group
with
no
significant
impact
on
its
consolidated
results
or
financial
position:
IFRIC
12
Service
concession
agreements
IFRIC
13
Customer
loyalty
programmes
IFRIC
14
IAS
19:
The
limit
on
a
defined
benefit
asset,
minimum
funding
requirements
and
their
interaction
The
following
standards
and
interpretations
issued
by
the
International
Accounting
Standards
Board
(‘IASB’)
or
the
IFRIC
have
not
yet
been
adopted
by
the
group:
Amendment
to
IFRS
3
Business
combinations
and
IAS
27
Consolidated
and
separate
financial
statements
(effective
prospectively
for
annual
periods
beginning
on
or
after
1
July
2009).
These
revised
standards
implement
substantial
revisions
in
the
application
of
acquisition
accounting,
notably
with
respect
to
the
treatment
of
acquisition
costs,
step
and
partial
acquisitions,
minority
interests
and
contingent
consideration.
The
group
has
reviewed
these
changes
and,
with
the
exception
of
the
requirement
to
expense
acquisition
costs,
does
not
expect
them
to
have
a
material
impact
on
the
group’s
results.
IFRS
8
Operating
segments
(effective
for
annual
periods
beginning
on
or
after
1
January
2009).
This
standard
contains
requirements
for
the
disclosure
of
information
about
an
entity’s
operating
segments
and
also
about
the
entity’s
products
and
services,
the
geographical
areas
in
which
it
operates,
and
its
major
customers.
The
standard
is
concerned
only
with
disclosure
and
replaces
IAS
14
Segment
reporting
.
The
standard
is
not
expected
to
have
a
material
effect
on
the
disclosure
of
the
group’s
operating
segments.
Amendment
to
IAS
23
Borrowing
costs
(effective
for
annual
periods
beginning
on
or
after
1
January
2009).
The
amendment
to
IAS
23
generally
eliminates
the
option
to
expense
as
incurred
borrowing
costs
attributable
to
the
acquisition,
construction
or
production
of
a
qualifying
asset,
and
instead
requires
the
capitalisation
of
such
borrowing
costs
as
part
of
the
cost
of
specific
assets.
The
group
does
not
expect
these
changes
to
have
a
material
effect
on
the
group’s
results.
IFRIC
16
Hedges
of
a
net
investment
in
a
foreign
operation
(effective
for
annual
periods
beginning
on
or
after
1
October
2008).
The
IFRIC
clarifies
certain
aspects
of
IAS
39
with
respect
to
hedge
accounting.
The
impact
of
this
interpretation
on
the
group’s
financial
statements
is
not
expected
to
be
material.
IAS
1
(Revised)
Presentation
of
financial
statements
(effective
for
annual
periods
beginning
on
or
after
1
January
2009,
endorsed
by
the
EU
in
December
2008).
IAS
27
(Revised)
Consolidated
and
separate
financial
statements
(effective
for
annual
periods
beginning
on
or
after
1
July
2009,
endorsed
by
the
EU
in
June
2009).
Amendments
to
IFRS
7
Improving
disclosures
about
financial
instruments
(effective
for
annual
periods
beginning
on
or
after
1
January
2009,
not
yet
endorsed
by
the
EU)
requires
enhanced
disclosures
about
fair
value
measurements
of
financial
instruments
by
using
a
three-level
fair
value
hierarchy
that
prioritises
the
inputs
to
valuation
techniques
used
in
fair
value
calculations.
The
amended
standard
also
requires
improved
disclosure
in
respect
of
liquidity
risk.
The
group
is
currently
assessing
the
impact
that
these
amendments
will
have
on
the
group’s
disclosures.
The
group
does
not
consider
that
any
other
standards
or
interpretations
issued
by
the
IASB
or
the
IFRIC,
either
applicable
in
the
current
year
or
not
yet
applicable,
have,
or
will
have,
a
significant
impact
on
the
consolidated
financial
statements.
Notes
forming
part
of
the
financial
statements
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
64
Financial
statements
//
Notes
forming
part
of
the
financial
statements
1.
Segmental
analysis
Segment
reporting
is
presented
in
respect
of
the
group’s
business
and
geographical
segments.
The
primary
format,
business
segments,
is
based
on
the
group’s
management
and
internal
reporting
structure
and
combines
businesses
with
common
characteristics.
Inter-segment
pricing
is
determined
on
an
arm’s
length
basis.
Segment
results,
assets
and
liabilities
include
items
directly
attributable
to
a
segment
as
well
as
those
that
can
be
allocated
on
a
reasonable
basis.
Unallocated
items
comprise
mainly
corporate
assets
and
expenses,
cash,
borrowings,
employee
benefit
balances
and
current
and
deferred
tax
balances.
Segment
capital
expenditure
is
the
total
cost
incurred
during
the
period
to
acquire
segment
assets
that
are
expected
to
be
used
for
more
than
one
year.
Business
segments
The
group
is
comprised
of
the
following
business
segments:
Grocery
The
manufacture
of
grocery
products,
including
hot
beverages,
sugar
&
sweeteners,
vegetable
oils,
bread
&
baked
goods,
cereals,
ethnic
foods,
herbs
&
spices,
and
meat
products
which
are
sold
to
retail,
wholesale
and
foodservice
businesses.
Sugar
The
growing
and
processing
of
sugar
beet
and
sugar
cane
for
sale
to
industrial
users
and
to
Silver
Spoon,
which
is
included
in
the
grocery
segment.
Agriculture
The
manufacture
of
animal
feeds
and
the
provision
of
other
products
for
the
agriculture
sector.
Ingredients
The
manufacture
of
bakers’
yeast,
bakery
ingredients,
speciality
proteins,
enzymes,
lipids
and
yeast
extracts.
Retail
Buying
and
merchandising
value
clothing
and
accessories
through
the
Primark
and
Penneys
retail
chains.
Geographical
segments
The
secondary
format
presents
the
revenues,
profits
and
assets
for
the
following
geographical
segments:
United
Kingdom
Europe
&
Africa
The
Americas
Asia
Pacific
Revenues
are
shown
by
reference
to
the
geographical
location
of
customers.
Profits
are
shown
by
reference
to
the
geographical
location
of
the
businesses.
Segment
assets
are
based
on
the
geographical
location
of
the
assets.
Adjusted
Revenue
operating
profit
2009
2008
2009
2008
£m
£m
£m
£m
business
segments
Grocery
3,188
2,820
191
194
Sugar
1,575
1,267
189
153
Agriculture
1,004
867
34
33
Ingredients
989
824
88
78
Retail
2,314
1,933
252
233
Central
(34)
(28)
9,070
7,711
720
663
Businesses
disposed:
Grocery
177
434
Agriculture
42
1
Ingredients
8
48
185
524
1
9,255
8,235
720
664
geographical
segments
United
Kingdom
4,140
3,766
354
309
Europe
&
Africa
2,027
1,489
219
159
The
Americas
1,068
860
85
105
Asia
Pacific
1,835
1,596
62
90
9,070
7,711
720
663
Businesses
disposed:
United
Kingdom
42
2
Europe
&
Africa
30
2
The
Americas
185
452
(3)
185
524
1
9,255
8,235
720
664
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
65
1.
Segmental
analysis
for
the
year
ended
12
September
2009
Business
segments
Grocery
Sugar
Agriculture
Ingredients
Retail
Central
Eliminations
Total
£m
£m
£m
£m
£m
£m
£m
£m
Reven
ue
from
continuing
businesses
3,197
1,683
1,005
1,033
2,314
(162)
9,070
Businesses
disposed
177
8
185
Internal
revenue
(9)
(108)
(1)
(44)
162
Revenue
from
external
customers
3,365
1,575
1,004
997
2,314
9,255
Adjusted
operating
profit
from
continuing
businesses
191
189
34
88
252
(34)
720
Businesses
disposed
Adjusted
operating
profit
191
189
34
88
252
(34)
720
Inventory
fair
value
adjustment
(12)
(12)
Amortisation
of
non-operating
intangibles
(27)
(25)
(1)
(29)
(82)
Profits
less
losses
on
sale
of
property,
plant
&
equipment
(1)
(1)
Profits
less
losses
on
sale
and
closure
of
businesses
(57)
(2)
(6)
(65)
Profit
before
interest
107
149
33
53
252
(34)
560
Finance
income
17
17
Finance
expense
(95)
(95)
Other
financial
income
13
13
Taxation
(112)
(112)
profit
for
the
period
107
149
33
53
252
(211)
383
Segment
assets
(excluding
investments
in
associates
and
joint
ventures)
2,414
2,570
230
1,240
1,780
54
8,288
Investments
in
associates
and
joint
ventures
32
42
51
29
154
segment
assets
2,446
2,612
281
1,269
1,780
54
8,442
Cash
and
cash
equivalents
391
391
Employee
benefits
assets
16
16
Deferred
tax
assets
184
184
segment
liabilities
(503)
(557)
(90)
(150)
(339)
(296)
(1,935)
Interest-bearing
loans
and
overdrafts
(1,390)
(1,390)
Income
tax
(114)
(114)
Deferred
tax
liabilities
(396)
(396)
Employee
benefits
liabilities
(122)
(122)
net
assets
1,943
2,055
191
1,119
1,441
(1,673)
5,076
Capital
additions
96
184
11
77
177
5
550
Depreciation
89
76
8
32
85
290
Impairment
of
PP&E
37
37
Amortisation
29
27
29
85
Impairment
of
intangibles
on
closure
of
business
6
6
Other
significant
non-cash
expenses
(inventory
fair
value
adjustment)
12
12
Ge
o
graphical
segments
United
Europe
The
Asia
Kingdom
&
Africa
Americas
Pacific
Eliminations
Total
£m
£m
£m
£m
£m
£m
Revenue
from
external
customers
4,140
2,027
1,253
1,835
9,255
Segment
assets
3,258
2,689
1,021
1,474
8,442
Capital
additions
198
189
20
143
550
Depreciation
149
62
27
52
290
Impairment
of
PP&E
37
37
Amortisation
14
35
26
10
85
Impairment
of
intangibles
on
closure
of
business
6
6
Other
significant
non-cash
expenses
(inventory
fair
value
adjustment)
12
12
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
66
Financial
statements
//
Notes
forming
part
of
the
financial
statements
1.
Segmental
analysis
for
the
year
ended
13
September
2008
Business
segments
Grocery
Sugar
Agriculture
Ingredients
Retail
Central
Eliminations
Total
£m
£m
£m
£m
£m
£m
£m
£m
Revenue
from
continuing
businesses
2,833
1,359
870
860
1,933
(144)
7,711
Businesses
disposed
434
42
54
(6)
524
Internal
revenue
(13)
(92)
(3)
(42)
150
Revenue
from
external
customers
3,254
1,267
909
872
1,933
8,235
Adjusted
operating
profit
from
continuing
businesses
194
153
33
78
233
(28)
663
Businesses
disposed
1
1
Adjusted
operating
profit
194
153
34
78
233
(28)
664
Exceptional
items
(61)
25
(10)
(46)
Amortisation
of
non-operating
intangibles
(22)
(24)
(28)
(74)
Profits
less
losses
on
sale
of
property,
plant
&
equipment
2
1
4
3
10
Profits
less
losses
on
sale
and
closure
of
businesses
1
4
5
Profit
before
interest
113
155
35
48
236
(28)
559
Finance
income
21
21
Finance
expense
(74)
(74)
Other
financial
income
21
21
Taxation
(136)
(136)
profit
for
the
period
113
155
35
48
236
(196)
391
Segment
assets
(excluding
investments
in
associates
and
joint
ventures)
2,415
2,072
213
1,146
1,628
15
7,489
Investments
in
associates
and
joint
ventures
12
31
40
15
98
segment
assets
2,427
2,103
253
1,161
1,628
15
7,587
Cash
and
cash
equivalents
348
348
Employee
benefits
assets
106
106
Deferred
tax
assets
101
101
Other
current
investments
9
9
segment
liabilities
(525)
(404)
(89)
(149)
(266)
(143)
(1,576)
Interest-bearing
loans
and
overdrafts
(1,148)
(1,148)
Income
tax
(89)
(89)
Deferred
tax
liabilities
(449)
(449)
Employee
benefits
liabilities
(45)
(45)
net
assets
1,902
1,699
164
1,012
1,362
(1,295)
4,844
Capital
additions
90
194
10
54
140
6
494
Depreciation
81
55
7
27
64
234
Impairment
of
PP&E
17
2
3
22
Amortisation
24
24
28
76
Geographical
segments
United
Europe
The
Asia
Kingdom
&
Africa
Americas
Pacific
Eliminations
Total
£m
£m
£m
£m
£m
£m
Revenue
from
external
customers
3,808
1,519
1,312
1,596
8,235
Segment
assets
3,334
1,947
1,090
1,216
7,587
Capital
additions
129
243
29
93
494
Depreciation
131
40
22
41
234
Impairment
of
PP&E
2
3
17
22
Amortisation
10
32
24
10
76
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
67
2.
Operating
costs
and
gross
profit
2009
2008
Note
£m
£m
operating
costs
Cost
of
sales
(including
amortisation
of
intangibles)
7,085
6,327
Distribution
costs
1,002
908
Administration
expenses
552
471
8,639
7,706
operating
costs
are
stated
after
charging/(crediting):
Employee
benefits
expense
3
1,295
1,122
Amortisation
of
non-operating
intangibles
8
82
74
Amortisation
of
operating
intangibles
8
3
2
Depreciation
of
owned
property,
plant
&
equipment
9
290
234
Operating
lease
payments
under
property
leases
81
70
Operating
lease
payments
for
hire
of
plant
&
equipment
10
7
Other
operating
income
(18)
(12)
Research
and
development
expenditure
23
21
Fair
value
gains
on
financial
assets
and
liabilities
held
for
trading
(97)
(25)
Fair
value
losses
on
financial
assets
and
liabilities
held
for
trading
95
24
Foreign
exchange
gains
on
operating
activities
(93)
(22)
Foreign
exchange
losses
on
operating
activities
90
16
In
2008,
an
exceptional
credit
of
£25m
arose
in
British
Sugar
comprising
compensation
receivable
for
quota
renunciation
less
factory
closure
costs
and
the
write-off
of
the
unamortised
cost
of
quota
purchased
in
2006.
The
compensation
was
received
in
full
in
2009.
An
exceptional
charge
of
£71m
was
made
for
the
cost
of
business
restructuring,
principally
the
Australian
meat
and
dairy
business
following
the
acquisition
of
KR
Castlemaine.
These
costs
comprised
severance
costs,
impairment
of
property,
plant
&
equipment
and
other
closure
costs.
A
tax
credit
of
£23m
arose
on
the
above
exceptional
items.
Following
a
change
in
tax
law
in
the
UK
Finance
Act
2008,
Industrial
Buildings
Allowances
are
being
phased
out.
An
exceptional
tax
charge
of
£17m
reflected
the
consequential
increase
in
the
group’s
deferred
tax
liability.
2009
2008
auditors’
remuneration
£m
£m
fees
payable
to
the
company’s
auditor
and
its
associates
in
respect
of
the
audit
Group
audit
of
the
Company’s
financial
statements
0.5
0.6
Audit
of
the
Company’s
subsidiaries
pursuant
to
legislation
4.2
3.4
Total
audit
remuneration
4.7
4.0
fees
payable
to
the
company’s
auditor
and
its
associates
in
respect
of
non-audit
related
services
Other
services
pursuant
to
legislation
0.3
0.3
Tax
services
2.4
2.3
Information
technology
services
0.2
Due
diligence
0.2
1.3
All
other
services
0.3
0.2
Total
non-audit
related
remuneration
3.2
4.3
fees
payable
to
the
company’s
auditor
and
its
associates
in
respect
of
the
group’s
pension
schemes
Audit
of
the
pension
schemes
0.1
0.1
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
68
Financial
statements
//
Notes
forming
part
of
the
financial
statements
3.
Employees
2009
2008
average
number
of
employees
United
Kingdom
32,399
30,840
Europe
&
Africa
39,065
40,137
The
Americas
4,166
4,358
Asia
Pacific
20,621
20,481
96,251
95,816
Note
£m
£m
employee
benefits
expense
Wages
and
salaries
1,128
977
Social
security
contributions
93
78
Contributions
to
defined
contribution
schemes
12
33
26
Charge
for
defined
benefit
schemes
12
36
36
Equity-settled
share-based
payment
schemes
23
5
5
1,295
1,122
Details
of
directors’
remuneration,
share
options
and
pension
entitlements
are
shown
in
the
Remuneration
report
on
pages
42
to
47.
4.
Interest
and
other
finance
income
and
expense
2009
2008
£m
£m
finance
income
Interest
income
on
financial
assets
not
at
fair
value
through
profit
or
loss:
cash
and
cash
equivalents
13
18
unwinding
of
discount
on
receivables
3
3
finance
leases
1
Total
finance
income
17
21
finance
expense
Interest
expense
on
financial
liabilities
not
at
fair
value
through
profit
or
loss:
bank
loans
and
overdrafts
(55)
(53)
all
other
borrowings
(31)
(16)
finance
leases
(1)
(1)
other
payables
(2)
(4)
unwinding
of
discount
on
provisions
(5)
Fair
value
loss
on
current
asset
investments
(1)
Total
finance
expense
(95)
(74)
other
financial
income
Expected
return
on
employee
benefit
scheme
assets
12
154
149
Interest
charge
on
employee
benefit
scheme
liabilities
12
(142)
(126)
Net
financial
income
in
respect
of
employee
benefit
schemes
12
23
Net
foreign
exchange
gains/(losses)
on
financing
activities
1
(2)
Total
other
financial
income
13
21
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
69
5.
Income
tax
expense
2009
2008
Note
£m
£m
current
tax
expense
UK
corporation
tax
at
28%
(2008
29.1%)
63
41
Overseas
corporation
tax
86
73
Underprovided
in
prior
years
3
2
152
116
deferred
tax
expense
UK
deferred
tax
10
28
Overseas
deferred
tax
(48)
(9)
(Over)/underprovided
in
prior
years
(2)
1
total
income
tax
expense
in
income
statement
112
136
reconciliation
of
effective
tax
rate
Profit
before
taxation
495
527
Less
share
of
profit
after
tax
from
joint
ventures
and
associates
(10)
(15)
profit
before
taxation
excluding
share
of
profit
after
tax
from
joint
ventures
and
associates
485
512
Nominal
tax
charge
at
UK
corporation
tax
rate
of
28%
(2008
29.1%)
136
149
Lower
tax
rates
on
overseas
earnings
(44)
(38)
Expenses
not
deductible
for
tax
purposes
12
12
Utilisation
of
losses
(10)
Deferred
tax
not
recognised
7
3
Abolition
of
UK
Industrial
Buildings
Allowances
2
17
Adjustments
in
respect
of
prior
periods
1
3
112
136
income
tax
recognised
directly
in
equity
Deferred
tax
associated
with
actuarial
gains
and
losses
on
defined
benefit
schemes
(62)
(71)
Deferred
tax
associated
with
movement
in
cash
flow
hedging
position
(18)
7
Deferred
tax
associated
with
movements
in
foreign
exchange
(1)
3
Current
tax
associated
with
movements
in
foreign
exchange
4
(77)
(61)
Deferred
taxation
balances
are
analysed
in
note
13.
6.
Dividends
2009
2008
pence
pence
2009
2008
per
share
per
share
£m
£m
2007
final
13.00
103
2008
interim
6.75
53
2008
final
13.50
107
2009
interim
6.90
54
20.40
19.75
161
156
The
2009
interim
dividend
was
declared
on
21
April
2009
and
paid
on
3
July
2009.
The
2009
final
dividend
of
14.1
pence,
total
value
of
£111m,
will
be
paid
on
8
January
2010
to
shareholders
on
the
register
on
4
December
2009.
Dividends
relating
to
the
period
were
21.0
pence
per
share
totalling
£165m
(2008
20.25
pence
per
share
totalling
£160m).
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
70
Financial
statements
//
Notes
forming
part
of
the
financial
statements
7.
Earnings
per
share
The
calculation
of
basic
earnings
per
share
at
12
September
2009
was
based
on
the
net
profit
attributable
to
equity
shareholders
of
£359m
(2008
£357m),
and
a
weighted
average
number
of
shares
outstanding
during
the
year
of
789
million
(2008
790
million).
The
calculation
of
the
weighted
average
number
of
shares
excludes
the
shares
held
by
the
Employee
Share
Ownership
Plan
Trust
on
which
the
dividends
are
being
waived.
Adjusted
earnings
per
ordinary
share,
which
exclude
the
impact
of
profits
less
losses
on
the
sale
of
property,
plant
&
equipment
and
businesses,
amortisation
of
non-operating
intangibles,
the
inventory
fair
value
adjustment
on
the
acquisition
of
Azucarera,
exceptional
items
and
the
associated
tax
credits,
is
shown
to
provide
clarity
on
the
underlying
performance
of
the
group.
The
diluted
earnings
per
share
calculation
takes
into
account
the
dilutive
effect
of
share
options
and
share
incentives.
The
diluted,
weighted
average
number
of
shares
is
789
million
(2008
790
million).
There
is
no
difference
between
basic
and
diluted
earnings.
2009
2008
£m
£m
adjusted
profit
for
the
period
455
434
Profits
less
losses
on
sale
of
property,
plant
&
equipment
(1)
10
Profits
less
losses
on
sale
and
closure
of
businesses
(65)
5
Inventory
fair
value
adjustment
(12)
Exceptional
items
(46)
Tax
effect
on
above
adjustments
29
(3)
Amortisation
of
non-operating
intangibles
(82)
(74)
Tax
credit
on
non-operating
intangibles
amortisation
and
goodwill
25
21
Minority
share
of
amortisation
of
non-operating
intangibles
net
of
tax
10
10
profit
for
the
period
attributable
to
equity
shareholders
359
357
2009
2008
pence
pence
adjusted
earnings
per
share
57.7
54.9
Sale
of
property,
plant
&
equipment
(0.1)
1.3
Sale
and
closure
of
businesses
(8.3)
0.6
Inventory
fair
value
adjustment
(1.5)
Exceptional
items
(5.8)
Tax
effect
on
above
adjustments
3.6
(0.4)
Amortisation
of
non-operating
intangibles
(10.4)
(9.4)
Tax
credit
on
non-operating
intangibles
amortisation
and
goodwill
3.2
2.7
Minority
share
of
amortisation
of
non-operating
intangibles
net
of
tax
1.3
1.3
earnings
per
ordinary
share
45.5
45.2
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
71
8.
Intangible
assets
Non-operating
Operating
Customer
Grower
Goodwill
Technology
Brands
relationships
agreements
Other
Other
Total
£m
£m
£m
£m
£m
£m
£m
£m
cost
At
15
September
2007
1,023
183
217
61
154
7
63
1,708
Acquired
through
business
combinations
128
7
67
10
17
229
Other
acquisitions
externally
purchased
36
36
Other
disposals
(53)
(53)
Transferred
to
assets
classified
as
held
for
sale
(11)
(11)
Effect
of
movements
in
foreign
exchange
85
27
16
4
3
135
at
13
september
2008
1,225
217
300
75
154
7
66
2,044
Acquired
through
business
combinations
28
27
14
8
5
82
Other
acquisitions
externally
purchased
41
41
Other
disposals
(18)
(18)
Transferred
to
assets
classified
as
held
for
sale
(26)
(2)
(28)
Effect
of
movements
in
foreign
exchange
69
14
11
9
25
1
5
134
at
12
september
2009
1,296
231
338
98
187
8
97
2,255
amortisation
and
impairment
At
15
September
2007
46
40
24
16
7
5
138
Amortisation
for
the
year
21
23
15
15
2
76
Impairment
5
5
Other
disposals
(5)
(5)
Effect
of
movements
in
foreign
exchange
9
6
15
at
13
september
2008
5
76
69
39
31
7
2
229
Amortisation
for
the
year
21
30
15
16
3
85
Impairment
on
closure
of
business
6
6
Effect
of
movements
in
foreign
exchange
5
4
5
7
1
22
at
12
september
2009
5
102
103
59
54
8
11
342
net
book
value
At
15
September
2007
1,023
137
177
37
138
58
1,570
At
13
September
2008
1,220
141
231
36
123
64
1,815
at
12
september
2009
1,291
129
235
39
133
86
1,913
Amortisation
charges
and
impairment
charges
are
recognised
within
operating
costs
in
the
income
statement.
£30m
of
intangible
assets
are
included
within
assets
classified
as
held
for
sale
(2008
£11m)
(see
note
15)
of
which
£28m
(net)
(2008
£11m)
was
transferred
in
the
year.
The
impairment
of
operating
intangibles
relates
to
the
closure
of
factories
following
the
contribution
of
the
US
packaged
oils
business
to
the
Stratas
joint
venture,
the
cost
of
which
has
been
included
within
losses
on
sale
and
closure
of
businesses
in
the
income
statement
and
is
included
in
the
Grocery
segment.
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
72
Financial
statements
//
Notes
forming
part
of
the
financial
statements
8.
Intangible
assets
continued
Impairment
Goodwill
As
at
12
September
2009,
the
consolidated
balance
sheet
included
goodwill
of
£1,291m.
Goodwill
is
allocated
to
the
group’s
cash-generating
units,
or
groups
of
cash-generating
units,
that
are
expected
to
benefit
from
the
synergies
of
the
business
combination
that
gave
rise
to
the
goodwill,
as
follows:
2009
2008
cash-generating
unit
(cgu)
or
group
of
cgus
Primary
reporting
segment
£m
£m
ACH
Grocery
231
225
AB
Mauri
Ingredients
330
297
Twinings/Ovaltine
Grocery
119
119
Capullo
Grocery
58
58
Illovo
Sugar
168
143
AB
World
Foods
Grocery
58
58
Northern
China
Sugar
Sugar
60
56
Other*
Various
267
264
1,291
1,220
*
The
amount
of
goodwill
allocated
to
each
CGU
or
group
of
CGUs
is
not
individually
significant.
A
CGU,
or
group
of
CGUs,
to
which
goodwill
has
been
allocated
must
be
assessed
for
impairment
annually
and
whenever
there
is
an
indication
of
impairment.
These
calculations
are
performed
annually
or
more
frequently
if
events
or
circumstances
indicate
that
the
carrying
amount
may
not
be
recoverable.
The
carrying
value
of
goodwill
has
been
assessed
with
reference
to
value
in
use
to
perpetuity
reflecting
the
projected
cash
flows
of
each
of
the
CGUs
or
group
of
CGUs
based
on
the
most
recent
budget.
Growth
rates
for
the
period
not
covered
by
the
budget
are
based
on
a
range
of
growth
rates
that
reflect
the
products,
industries
and
countries
in
which
the
relevant
CGU
or
group
of
CGUs
operate.
The
key
assumptions
on
which
the
cash
flow
projections
for
the
most
recent
annual
budget
are
based
relate
to
discount
rates,
growth
rates
and
expected
changes
in
selling
prices
and
direct
costs.
The
cash
flow
projections
have
been
discounted
using
a
range
of
rates
based
on
the
group’s
pre-tax
weighted
average
cost
of
capital
adjusted
for
specific
risks
of
the
business
if
necessary.
The
rates
used
vary
between
8%
and
11%.
The
growth
rates
applied
in
the
value
in
use
calculations
for
goodwill
allocated
to
each
of
the
CGUs
or
groups
of
CGUs
that
is
significant
to
the
total
carrying
amount
of
goodwill
were
in
a
range
between
0%
and
2.5%.
For
some
recently
acquired
intangible
assets,
management
expects
to
achieve
growth
over
the
next
three
to
five
years
in
excess
of
the
long-term
growth
rates
for
the
applicable
country
or
region.
In
these
circumstances,
the
cash
flow
forecast
is
extended
to
between
three
and
five
years
using
specific
growth
assumptions.
Changes
in
selling
price
and
direct
costs
are
based
on
past
results
and
expectations
of
future
changes
in
the
market.
Sensitivity
to
changes
in
key
assumptions
Each
of
the
group’s
CGUs
had
significant
headroom
under
the
annual
impairment
review
with
the
exception
of
the
recently
acquired
sugar
business
in
north
east
China.
A
significant
national
sugar
stock
overhang
from
2007/8,
depressed
prices
and
a
reduced
crop
in
the
north
with
exceptionally
low
sugar
content
impacted
operating
costs.
Current
forecasts
support
the
carrying
value
of
the
assets
of
the
business
but
the
achievement
of
these
forecasts
depends
on
the
recovery
of
sugar
prices,
improvements
in
agricultural
yields,
and
higher
factory
volumes.
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
73
9.
Property,
plant
&
equipment
Land
and
Plant
and
Fixtures
and
Assets
under
buildings
machinery
fittings
construction
Total
£m
£m
£m
£m
£m
cost
At
15
September
2007
1,328
1,927
771
78
4,104
Acquired
through
business
combinations
57
36
1
14
108
Other
acquisitions
91
115
93
195
494
Businesses
disposed
(3)
(28)
(1)
(32)
Other
disposals
(10)
(50)
(16)
(76)
Transfer
to
assets
classified
as
held
for
sale
(4)
(4)
(8)
Transfers
from
assets
under
construction
23
85
3
(111)
Effect
of
movements
in
foreign
exchange
71
127
21
20
239
at
13
september
2008
1,553
2,208
872
196
4,829
Acquired
through
business
combinations
85
114
3
16
218
Other
acquisitions
147
155
96
152
550
Businesses
disposed
(9)
(35)
(1)
(45)
Other
disposals
(42)
(176)
(35)
(253)
Transfer
to
assets
classified
as
held
for
sale
(37)
(61)
(2)
(4)
(104)
Transfers
from
assets
under
construction
16
142
2
(160)
Effect
of
movements
in
foreign
exchange
54
88
19
(17)
144
at
12
september
2009
1,767
2,435
954
183
5,339
depreciation
and
impairment
At
15
September
2007
231
1,038
193
1,462
Depreciation
for
the
year
30
138
66
234
Impairment
2
20
22
Businesses
disposed
(1)
(24)
(1)
(26)
Other
disposals
(40)
(12)
(52)
Effect
of
movements
in
foreign
exchange
13
60
6
79
at
13
september
2008
275
1,192
252
1,719
Depreciation
for
the
year
38
168
84
290
Impairment
on
closure
of
business
15
22
37
Businesses
disposed
(1)
(16)
(17)
Other
disposals
(40)
(152)
(34)
(226)
Transfer
to
assets
classified
as
held
for
sale
(12)
(28)
(1)
(41)
Effect
of
movements
in
foreign
exchange
5
49
4
58
at
12
september
2009
280
1,235
305
1,820
net
book
value
At
15
September
2007
1,097
889
578
78
2,642
At
13
September
2008
1,278
1,016
620
196
3,110
at
12
september
2009
1,487
1,200
649
183
3,519
2009
2008
£m
£m
Net
book
value
of
finance
lease
assets
13
14
Land
and
buildings
at
net
book
value
comprise:
freehold
1,161
976
long
leasehold
242
214
short
leasehold
84
88
1,487
1,278
Capital
expenditure
commitments
contracted
but
not
provided
for
211
229
£64m
of
property,
plant
&
equipment
is
included
within
assets
classified
as
held
for
sale
(2008
£8m)
(see
note
15)
of
which
£63m
(net)
(2008
£8m)
was
transferred
in
the
year.
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
74
Financial
statements
//
Notes
forming
part
of
the
financial
statements
9.
Property,
plant
&
equipment
continued
Impairment
The
impairment
of
property,
plant
&
equipment
relates
to
the
closure
of
factories
following
the
contribution
of
the
US
packaged
oils
business
to
the
Stratas
joint
venture,
the
cost
of
which
has
been
included
within
losses
on
sale
and
closure
of
businesses
in
the
income
statement
and
is
included
in
the
Grocery
segment.
In
2008
the
impairment
of
property,
plant
&
equipment
principally
related
to
a
restructuring
of
the
Australian
meat
business,
following
the
acquisition
of
KR
Castlemaine,
the
cost
of
which
was
recorded
as
an
exceptional
item
within
operating
costs
in
the
income
statement,
and
included
in
the
Grocery
segment.
10.
Biological
assets
Current
Non-current
Growing
Cane
cane
Other
Total
roots
£m
£m
£m
£m
At
15
September
2007
53
53
48
Acquired
through
business
contributions
2
2
Harvested
cane
transferred
to
inventory
(65)
(9)
(74)
Purchases
10
1
11
3
Sales
(2)
(2)
Changes
in
fair
value
66
12
78
6
Effect
of
movements
in
foreign
exchange
12
12
9
at
13
september
2008
76
4
80
66
Acquired
through
business
combinations
4
4
4
Harvested
cane
transferred
to
inventory
(64)
(8)
(72)
Purchases
1
6
7
10
Changes
in
fair
value
77
4
81
9
Effect
of
movements
in
foreign
exchange
1
1
3
at
12
september
2009
95
6
101
92
cane
roots
2009
2008
area
under
cane
as
at
the
end
of
the
period
(hectares):
South
Africa
8,162
9,669
Malawi
19,924
20,446
Zambia
17,072
14,466
Swaziland
8,175
8,172
Tanzania
8,515
8,515
Mozambique
5,255
5,235
67,103
66,503
growing
cane
The
following
assumptions
have
been
used
in
the
determination
of
the
estimated
sucrose
tonnage
at
12
September
2009:
South
Africa
Malawi
Zambia
Swaziland
Tanzania
Mozambique
Expected
area
to
harvest
(hectares)
5,379
19,463
15,551
7,597
8,275
5,030
Estimated
yield
(tonnes
cane/hectare)
72.2
111.7
133.0
102.6
75.0
92.0
Average
maturity
of
cane
52.0%
66.7%
66.7%
66.7%
50.0%
66.7%
The
following
assumptions
were
used
in
the
determination
of
the
estimated
sucrose
tonnage
at
13
September
2008:
South
Africa
Malawi
Zambia
Swaziland
Tanzania
Mozambique
Expected
area
to
harvest
(hectares)
6,498
19,501
14,234
7,808
8,260
5,147
Estimated
yield
(tonnes
cane/hectare)
73.0
110.2
138.0
103.3
81.3
90.6
Average
maturity
of
cane
62.0%
66.7%
66.7%
66.7%
50.0%
66.7%
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
75
11.
Investments
in
joint
ventures
and
associates
Joint
ventures
Associates
Shares
Goodwill
Total
Shares
Goodwill
Total
£m
£m
£m
£m
£m
£m
At
15
September
2007
41
5
46
25
8
33
Acquisitions
18
1
19
Profit
for
the
period
10
10
5
5
Dividends
received
(1)
(1)
(1)
(1)
Transfer
to
subsidiary
(7)
(8)
(15)
Other
reserves
movements
(1)
(1)
(1)
(1)
Effect
of
movements
in
foreign
exchange
2
2
2
2
at
13
september
2008
69
6
75
23
23
Acquisitions
41
8
49
3
3
Profit
for
the
period
2
2
4
4
Dividends
received
(3)
(3)
(1)
(1)
Effect
of
movements
in
foreign
exchange
(1)
(1)
3
3
at
12
september
2009
108
14
122
32
32
Profit
for
the
period
of
£6m
(£2m
joint
ventures
and
£4m
associates)
comprises
£10m
shown
in
share
of
profit
after
tax
from
joint
ventures
and
associates
(£6m
joint
ventures
and
£4m
associates)
and
a
£4m
loss
relating
to
joint
ventures
included
in
profits
less
losses
on
sale
and
closure
of
businesses.
Details
of
principal
joint
ventures
and
associates
are
listed
in
note
30.
Included
in
the
consolidated
financial
statements
are
the
following
items
that
represent
the
group’s
share
of
the
assets,
liabilities
and
profit
of
joint
ventures
and
associates:
Joint
ventures
Associates
2009
2008
2009
2008
£m
£m
£m
£m
Non-current
assets
105
30
18
13
Current
assets
235
154
152
55
Current
liabilities
(159)
(115)
(132)
(44)
Non-current
liabilities
(73)
(6)
(1)
Goodwill
14
6
Net
assets
122
75
32
23
Revenue
913
576
18
27
Expenses
(915)
(562)
(12)
(19)
Taxation
4
(4)
(2)
(3)
Profit
for
the
period
2
10
4
5
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
76
Financial
statements
//
Notes
forming
part
of
the
financial
statements
12.
Employee
entitlements
The
group
operates
pension
schemes,
the
majority
of
which
are
of
the
defined
benefit
type.
The
group
also
operates
a
small
number
of
unfunded
overseas
post-
retirement
medical
benefit
schemes.
UK
schemes
The
group’s
principal
UK
defined
benefit
pension
schemes
are
funded
schemes
and
are
closed
to
new
members,
with
defined
contribution
arrangements
in
place
for
other
employees.
The
pension
costs
in
the
UK
for
the
defined
benefit
schemes
are
assessed
in
accordance
with
the
advice
of
independent
qualified
actuaries
using
the
projected
unit
method.
For
defined
contribution
schemes,
the
pension
costs
are
the
contributions
payable.
Actuarial
gains
and
losses
arising
over
the
financial
year
are
recognised
immediately
in
the
statement
of
recognised
income
and
expense,
and
are
reflected
in
the
balance
sheet
at
12
September
2009.
Past
service
cost
is
recognised
immediately
to
the
extent
that
the
benefits
have
already
vested.
The
last
actuarial
valuation
of
the
Associated
British
Foods
Pension
Scheme
was
carried
out
as
at
5
April
2008.
At
the
valuation
date
the
total
market
value
of
the
assets
of
the
Scheme
was
£2,223m
and
represented
93%
of
the
benefits
that
had
accrued
to
members
after
allowing
for
expected
future
increases
in
earnings.
Following
completion
of
the
actuarial
valuation,
the
group
agreed
to
make
five
annual
payments
of
£30m
in
order
to
eliminate
the
deficit
at
5
April
2008.
The
first
of
these
payments
was
made
in
March
2009.
Overseas
schemes
The
group
also
operates
defined
benefit
pension
schemes
in
Australia
and
New
Zealand,
the
United
States,
Canada,
the
Republic
of
Ireland,
Switzerland,
Germany,
France,
Italy,
the
Philippines,
Thailand,
South
Africa
and
Zambia.
These
schemes
are
primarily
funded
schemes.
The
charge
for
the
year
is
based
on
recommendations
by
qualified
actuaries.
Unfunded
post-retirement
medical
benefit
schemes
are
accounted
for
as
defined
benefit
pension
schemes.
For
defined
contribution
schemes,
the
pension
costs
are
the
contributions
payable.
Assumptions
The
UK
pension
schemes
represent
90%
(2008
91%)
of
both
the
group’s
scheme
assets
and
scheme
liabilities.
The
financial
assumptions
used
to
value
the
UK
pension
schemes
under
IAS
19,
together
with
the
expected
long-term
rates
of
return
on
assets,
are:
2009
2008
2007
%
%
%
Discount
rate
5.7
6.0
5.8
Inflation
3.5
3.7
3.3
Rate
of
increase
in
salaries
5.0
5.2
4.8
Rate
of
increase
for
pensions
in
payment
3.3
3.5
3.1
Rate
of
increase
for
pensions
in
deferment
(where
provided)
3.5
3.7
3.3
The
mortality
assumptions
used
to
value
the
UK
pension
schemes
are
derived
from
the
PA92
generational
mortality
tables
with
medium
cohort
improvements
and
an
underpin
improvement,
as
published
by
the
Institute
of
Actuaries.
These
mortality
assumptions
take
account
of
experience
to
date,
and
assumptions
for
further
improvements
in
life
expectancy
of
scheme
members.
Examples
of
the
resulting
life
expectancies
are
as
follows:
2009
2008
life
expectancy
from
age
65
(in
years)
Male
Female
Male
Female
Member
aged
65
in
2009
20.8
22.7
20.7
22.6
Member
aged
65
in
2029
22.6
24.2
22.5
24.1
The
other
demographic
assumptions
have
been
set
having
regard
to
the
latest
trends
in
scheme
experience
and
other
relevant
data.
The
assumptions
are
reviewed
and
updated
as
necessary
as
part
of
the
periodic
actuarial
valuation
of
the
pension
schemes.
For
the
overseas
schemes,
regionally
appropriate
assumptions
have
been
used
where
recommended
by
local
actuaries.
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
77
12.
Employee
entitlements
continued
Balance
sheet
The
expected
rates
of
return
and
market
values
of
the
assets
of
the
principal
schemes
were
as
follows:
2009
2009
2008
2008
2007
2007
uk
schemes
%
£m
%
£m
%
£m
Expected
long-term
rates
of
return:
Equities
7.2
674
7.7
752
7.3
826
Government
bonds
4.2
673
4.7
643
4.3
684
Non-government
bonds
5.7
696
6.0
694
5.8
622
Property
5.7
75
6.2
90
5.8
106
Other
0.5
17
5.0
23
5.8
18
Total
market
value
of
assets
2,135
2,202
2,256
Present
value
of
scheme
liabilities
(2,211)
(2,117)
(1,972)
Aggregate
net
(deficit)/surplus
of
the
plan
(76)
85
284
Irrecoverable
surplus
(a)
Net
pension
(liability)/asset
(76)
85
284
Unfunded
liability
included
in
the
present
value
of
scheme
liabilities
above
(11)
(8)
(6)
The
sensitivities
regarding
the
principal
assumptions
used
to
measure
scheme
liabilities
at
12
September
2009
are:
Change
in
assumption
Impact
on
scheme
liabilities
Discount
rate
decrease/increase
by
0.5%
increase/decrease
by
8.3%
Inflation
increase/decrease
by
0.5%
increase/decrease
by
8.7%
Rate
of
increase
in
salaries
increase/decrease
by
0.5%
increase/decrease
by
1.7%
Rate
of
mortality
reduce
by
one
year
increase
by
2.7%
2009
2009
2008
2008
2007
2007
overseas
schemes
%
£m
%
£m
%
£m
Expected
long-term
rates
of
return:
Equities
8.8
102
8.9
108
8.4
109
Government
bonds
7.0
69
6.9
49
6.4
51
Non-government
bonds
4.1
36
4.0
37
3.7
33
Property
5.9
6
6.4
5
6.0
6
Other
5.4
25
6.1
23
9.4
19
Total
market
value
of
assets
238
222
218
Present
value
of
scheme
liabilities
(242)
(211)
(192)
Aggregate
net
(deficit)/surplus
of
the
plans
(4)
11
26
Irrecoverable
surplus
(a)
(26)
(35)
(34)
Net
pension
liability
(30)
(24)
(8)
Unfunded
liability
included
in
the
present
value
of
scheme
liabilities
above
(32)
(22)
(25)
(a)
The
surplus
in
the
plans
is
only
recoverable
to
the
extent
that
the
group
can
benefit
from
either
refunds
formally
agreed
or
future
contribution
reductions.
The
expected
rate
of
return
on
plan
assets
was
determined,
based
on
actuarial
advice,
by
a
process
that
takes
the
long-term
rate
of
return
on
government
bonds
available
at
the
balance
sheet
date
and
with
a
similar
maturity
to
the
scheme
liabilities,
and
applies
to
these
rates
suitable
risk
premia
that
take
account
of
historic
market
returns
and
current
market
long-term
expectations
for
each
asset
class.
The
UK
schemes’
net
pension
liability
of
£76m
(2008
£85m
asset)
plus
the
overseas
schemes’
net
pension
liability
of
£30m
(2008
£24m
liability)
totals
a
liability
of
£106m
(2008
£61m
asset).
This
equates
to
the
employee
benefits
asset
of
£16m
(2008
£106m)
and
liability
of
£122m
(2008
£45m)
shown
on
the
face
of
the
consolidated
balance
sheet.
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
78
Financial
statements
//
Notes
forming
part
of
the
financial
statements
12.
Employee
entitlements
continued
Income
statement
The
charge
to
the
income
statement
comprises:
2009
2008
£m
£m
Charged
to
operating
profit:
Defined
benefit
plans
Current
service
cost
(35)
(35)
Past
service
cost
(2)
(2)
Gain
on
curtailment
1
1
Defined
contribution
plans
(33)
(26)
Total
operating
cost
(69)
(62)
Reported
in
other
financial
income:
Expected
return
on
assets
154
149
Interest
charge
on
liabilities
(142)
(126)
Net
financial
income
from
employee
benefit
schemes
12
23
Net
impact
on
the
income
statement
(before
tax)
(57)
(39)
The
actual
return
on
scheme
assets
was
a
loss
of
£49m
(2008
loss
of
£21m).
Cash
flow
Group
cash
flow
in
respect
of
employee
benefits
schemes
comprises
contributions
paid
to
funded
plans
and
benefits
paid
in
respect
of
unfunded
plans.
In
2009,
the
benefits
paid
in
respect
of
unfunded
plans
was
£1m
(2008
nil).
Company
contributions
to
funded
defined
benefit
plans
are
subject
to
periodic
review.
In
2009,
contributions
to
funded
defined
benefit
plans
amounted
to
£76m
(2008
£54m).
Contributions
to
defined
contribution
plans
amounted
to
£33m
(2008
£26m).
Total
contributions
to
funded
plans
and
benefit
payments
by
the
group
in
respect
of
unfunded
plans
are
currently
expected
to
be
approximately
£70m
in
2010
(2009
£45m).
Statement
of
recognised
income
and
expense
Amounts
recognised
in
the
statement
of
recognised
income
and
expense:
2009
2008
£m
£m
Actual
return
less
expected
return
on
pension
scheme
assets
(203)
(170)
Experience
gains
and
losses
arising
on
the
scheme
liabilities
5
61
Changes
in
assumptions
underlying
the
present
value
of
the
scheme
liabilities
(33)
(144)
(231)
(253)
Change
in
unrecognised
surplus
14
(1)
Net
actuarial
loss
recognised
in
the
statement
of
recognised
income
and
expense
(before
tax)
(217)
(254)
Cumulative
actuarial
losses
from
19
September
2004
reported
in
the
statement
of
recognised
income
and
expense
are
£325m
(2008
cumulative
losses
of
£108m).
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
79
12.
Employee
entitlements
continued
Reconciliation
of
change
in
assets
and
liabilities
2009
2008
2009
2008
2009
2008
assets
assets
liabilities
liabilities
net
net
£m
£m
£m
£m
£m
£m
Asset/(liability)
at
beginning
of
year
2,424
2,474
(2,328)
(2,164)
96
310
Current
service
cost
(35)
(35)
(35)
(35)
Employee
contributions
11
10
(11)
(10)
Acquired
through
business
combinations
(2)
(2)
Businesses
disposed
1
1
Employer
contributions
76
54
76
54
Benefit
payments
(117)
(113)
117
113
Past
service
cost
(2)
(2)
(2)
(2)
Gain
on
curtailments
1
1
1
1
Financial
income
154
149
154
149
Financial
expenses
(142)
(126)
(142)
(126)
Actuarial
gain/(loss)
(203)
(170)
(28)
(84)
(231)
(254)
Effect
of
movements
in
foreign
exchange
28
20
(25)
(20)
3
Asset/(liability)
at
end
of
year
2,373
2,424
(2,453)
(2,328)
(80)
96
history
of
experience
gains
and
losses
2009
2008
2007
2006
Difference
between
the
expected
and
actual
return
on
scheme
assets
amount
(£m)
(203)
(170)
(20)
75
percentage
of
scheme
assets
8.6%
7.0%
0.8%
3
.1%
Experience
gains
and
losses
on
scheme
liabilities
amount
(£m)
5
61
(32)
4
percentage
of
scheme
liabilities
0.2%
2.6%
1.5%
0
.2%
Total
amount
included
in
statement
of
recognised
income
and
expense
amount
(£m)
(231)
(253)
108
49
percentage
of
scheme
liabilities
9.4%
10.9%
5.0%
2.2%
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
80
Financial
statements
//
Notes
forming
part
of
the
financial
statements
13.
Deferred
tax
assets
and
liabilities
Property
Financial
Other
Tax
value
of
plant
&
Intangible
Employee
assets
and
temporary
carry-forward
equipment
assets
benefits
liabilities
differences
losses
Total
£m
£m
£m
£m
£m
£m
£m
At
15
September
2007
160
98
80
52
(30)
360
Amount
charged
to
the
income
statement
32
(7)
11
(11)
(4)
21
Amount
charged
to
the
statement
of
recognised
income
and
expense
(71)
7
3
(61)
Acquired
through
business
combinations
24
(2)
22
Effect
of
change
in
tax
rate:
income
statement
(1)
(1)
Effect
of
movements
in
foreign
exchange
5
6
1
(1)
2
(6)
7
at
13
september
2008
196
121
21
6
44
(40)
348
Amount
charged
to
the
income
statement
(5)
(7)
13
5
(45)
(39)
Amount
charged
to
the
statement
of
recognised
income
and
expense
(62)
(18)
(1)
(81)
Acquired
through
business
combinations
3
5
(18)
(13)
(23)
Businesses
disposed
(1)
(1)
Effect
of
change
in
tax
rate:
income
statement
(1)
(1)
Effect
of
movements
in
foreign
exchange
4
8
(2)
(5)
4
9
at
12
september
2009
197
127
(28)
(14)
25
(95)
212
Certain
deferred
tax
assets
and
liabilities
have
been
offset.
The
following
is
the
analysis
of
the
deferred
tax
balances
(after
offset)
for
financial
reporting
purposes:
2009
2008
£m
£m
Deferred
tax
assets
(184)
(101)
Deferred
tax
liabilities
396
449
212
348
The
recoverability
of
deferred
tax
assets
is
supported
by
the
expected
level
of
future
profits
in
the
countries
concerned.
Other
deferred
tax
assets
totalling
£11m
(2008
£6m)
have
not
been
recognised
on
the
basis
that
their
future
economic
benefit
is
uncertain.
In
addition,
there
are
temporary
differences
of
£1,778m
(2008
£1,460m)
relating
to
investments
in
subsidiaries.
No
deferred
tax
has
been
provided
in
respect
of
these
differences,
since
the
timing
of
the
reversals
can
be
controlled
and
it
is
probable
that
the
temporary
differences
will
not
reverse
in
the
future.
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
81
14.
Trade
and
other
receivables
2009
2008
£m
£m
non-current
other
receivables
Loans
and
receivables
132
55
Other
non-current
investments
8
20
140
75
current
trade
and
other
receivables
Trade
receivables
847
827
Other
receivables
135
131
Accrued
income
22
34
1,004
992
Prepayments
and
other
non-financial
receivables
117
236
1,121
1,228
£20m
trade
and
other
receivables
(2008
£nil)
are
included
within
assets
held
for
sale
(see
note
15)
of
which
£3m
relates
to
non-financial
receivables.
The
directors
consider
that
the
carrying
amount
of
receivables
approximates
fair
value.
For
details
of
credit
risk
exposure
on
trade
and
other
receivables,
see
note
25.
Trade
and
other
receivables
includes
£19m
in
respect
of
finance
lease
receivables
(£18m
in
non-current
loans
and
receivables
and
£1m
in
current
other
receivables).
There
were
no
balances
in
2008.
Minimum
lease
payments
receivable
are
£1m
within
one
year,
£16m
between
one
and
five
years,
and
£4m
after
five
years.
The
finance
lease
receivables
relate
to
property,
plant
&
equipment
leased
to
a
joint
venture
of
the
group
(see
note
28).
15.
Assets
and
liabilities
classified
as
held
for
sale
In
August
2009,
agreement
was
reached
to
sell
the
Polish
sugar
business,
completion
of
which
is
subject
to
competition
clearance,
and
the
Polish
sugar
business
has
been
classified
as
a
disposal
group
held
for
sale
at
the
year
end.
The
disposal
of
the
business
will
not
qualify
as
a
discontinued
operation.
The
proceeds
of
disposal
are
expected
to
exceed
the
book
value
of
the
related
net
assets
and
accordingly
no
impairment
losses
have
been
recognised
on
the
classification
of
this
operation
as
held
for
sale.
In
the
prior
year,
£11m
of
goodwill
and
£8m
of
property,
plant
&
equipment
was
classified
as
held
for
sale.
The
goodwill
was
included
within
the
Grocery
and
The
Americas
segments.
The
property,
plant
&
equipment
was
included
within
the
Sugar
and
Europe
&
Africa
segments.
2009
2008
£m
£m
assets
classified
as
held
for
sale
Intangible
assets
30
11
Property,
plant
&
equipment
64
8
Inventories
14
Trade
and
other
receivables
20
Cash
and
cash
equivalents
8
136
19
liabilities
classified
as
held
for
sale
Trade
and
other
payables
25
Income
tax
1
26
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
82
Financial
statements
//
Notes
forming
part
of
the
financial
statements
16.
Inventories
2009
2008
£m
£m
Raw
materials
and
consumables
329
325
Work
in
progress
14
15
Finished
goods
and
goods
held
for
resale
919
702
1,262
1,042
Write
down
of
inventories
(60)
(39)
£14m
of
inventories
(2008
£nil)
are
included
within
assets
classified
as
held
for
sale
(see
note
15),
of
which
£3m
relates
to
non-financial
receivables.
17.
Cash
and
cash
equivalents
2009
2008
Note
£m
£m
cash
Cash
at
bank
and
in
hand
340
326
Cash
equivalents
43
22
Cash
and
cash
equivalents
25
383
348
reconciliation
to
the
cash
flow
statement
Cash
and
cash
equivalents
included
in
assets
classified
as
held
for
sale
15
8
Bank
overdrafts
18
(30)
(138)
Cash
and
cash
equivalents
in
the
cash
flow
statement
361
210
Cash
at
bank
and
in
hand
generally
earns
interest
at
rates
based
on
the
daily
bank
deposit
rate.
Cash
equivalents
generally
comprise:
(i)
deposits
placed
on
money
markets
for
periods
up
to
three
months
which
earn
interest
at
the
respective
short-term
deposit
rate;
and
(ii)
funds
invested
with
fund
managers
that
have
a
maturity
of
less
than
or
equal
to
three
months
and
are
at
fixed
rates.
The
carrying
amount
of
cash
and
cash
equivalents
approximates
fair
value.
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
83
18.
Interest-bearing
loans
and
overdrafts
2009
2008
Note
£m
£m
current
loans
and
overdrafts
Secured
bank
loans
43
24
Unsecured
bank
loans
and
overdrafts
541
253
Finance
lease
liabilities
26
1
584
278
non-current
loans
Secured
redeemable
debenture
stock
2013
150
150
Secured
bank
loans
101
113
Unsecured
bank
loans
542
594
Finance
lease
liabilities
26
13
13
806
870
25
1,390
1,148
2009
2008
£m
£m
10
3
/
4
%
secured
redeemable
debenture
stock
2013
(GBP)
150
150
Secured
bank
loans
GBP
floating
rate
1
USD
floating
rate
15
13
EUR
fixed
rate
1
1
ZAR
floating
rate
6
RMB
floating
rate
39
14
RMB
fixed
rate
4
6
Other
floating
rate
45
57
Other
fixed
rate
34
45
Unsecured
bank
loans
and
overdrafts
Bank
overdrafts
30
138
GBP
floating
rate
120
148
GBP
fixed
rate
82
USD
floating
rate
21
195
USD
fixed
rate
278
1
EUR
floating
rate
330
285
EUR
fixed
rate
21
3
ZAR
floating
rate
99
50
RMB
floating
rate
86
RMB
fixed
rate
8
Other
floating
rate
7
25
Other
fixed
rate
1
2
Finance
lease
liabilities
(fixed
rate)
13
14
1,390
1,148
Secured
bank
loans
comprise
amounts
borrowed
from
commercial
banks
and
are
secured
by
floating
charges
over
the
assets
of
subsidiaries.
Bank
overdrafts
generally
bear
interest
at
floating
rates.
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
84
Financial
statements
//
Notes
forming
part
of
the
financial
statements
19.
Trade
and
other
payables
2009
2008
£m
£m
Trade
payables
667
570
Accruals
560
664
1,227
1,234
Deferred
income
and
other
non-financial
payables
186
131
1,413
1,365
For
payables
with
a
remaining
life
of
less
than
one
year,
the
carrying
amount
is
deemed
to
reflect
the
fair
value.
£25m
trade
and
other
payables
(2008
£nil)
are
included
within
liabilities
classified
as
held
for
sale
(see
note
15),
of
which
£4m
relates
to
non-financial
payables.
20.
Provisions
Deferred
Restructuring
consideration
Other
Total
£m
£m
£m
£m
At
13
September
2008
58
105
23
186
Created
45
145
6
196
Acquired
through
business
combinations
92
92
Unwinding
of
discount
5
5
Utilised
(37)
(11)
(12)
(60)
Released
(1)
(1)
(2)
(4)
Effect
of
movements
in
foreign
exchange
2
1
3
6
at
12
september
2009
67
244
110
421
Current
60
133
55
248
Non-current
7
111
55
173
67
244
110
421
Provisions
include
financial
liabilities
of
£421m
(2008
£174m)
(see
note
25).
Restructuring
Restructuring
provisions
relate
to
the
cash
costs,
including
redundancy,
associated
with
the
group’s
announced
reorganisation
plans,
of
which
the
majority
will
be
utilised
in
2009/10.
Deferred
consideration
Deferred
consideration
comprises
estimates
of
amounts
due
to
the
previous
owners
of
businesses
acquired
by
the
group
which
are
often
linked
to
performance
or
other
conditions.
It
also
includes
£122m
of
advance
consideration
received
in
respect
of
the
agreement
to
dispose
of
the
Polish
sugar
business.
Other
Other
provisions
mainly
comprise
litigation
claims,
onerous
leases
and
warranty
claims
arising
from
the
sale
and
closure
of
businesses.
The
extent
and
timing
of
the
utilisation
of
these
provisions
is
more
uncertain
given
the
nature
of
the
claims
and
the
period
of
the
warranties.
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
85
21.
Total
equity
Reconciliation
of
movement
in
capital
and
reserves
Attributable
to
equity
shareholders
Share
Other
Translation
Hedging
Retained
Minority
Total
capital
reserves
reserve
reserve
earnings
Total
interests
equity
£m
£m
£m
£m
£m
£m
£m
£m
At
15
September
2007
47
173
(49)
(1)
4,074
4,244
220
4,464
Total
recognised
income
and
expense
for
the
period
270
26
170
466
67
533
Dividends
paid
to
shareholders
(156)
(156)
(156)
Net
decrease
in
own
shares
held
3
3
3
Minority
interests
acquired/disposed
24
24
Dividends
paid
to
minorities
(21)
(21)
Changes
in
fair
value
of
minority
interests
on
acquisition
(3)
(3)
(3)
at
13
september
2008
47
173
221
25
4,088
4,554
290
4,844
Total
recognised
income
and
expense
for
the
period
218
(57)
200
361
43
404
Dividends
paid
to
shareholders
(161)
(161)
(161)
Net
increase
in
own
shares
held
(10)
(10)
(10)
Minority
interests
acquired/disposed
9
9
Sale
of
shares
to
minority
interests
19
19
Gain
on
deemed
disposal
10
10
(10)
Dividends
paid
to
minorities
(23)
(23)
Changes
in
fair
value
of
minority
interests
on
acquisition
(6)
(6)
(6)
at
12
september
2009
47
173
439
(32)
4,121
4,748
328
5,076
Share
capital
Ordinary
Deferred
shares
of
shares
of
5
15
22
p
Nominal
£1
each
each
value
000
000
£m
authorised
At
13
September
2008
and
12
September
2009
2,000
1,054,950
62
issued
and
fully
paid
At
13
September
2008
and
12
September
2009
2,000
791,674
47
The
deferred
shares
became
redeemable
on
1
August
1997.
The
amount
payable
by
the
Company
on
redemption
is
the
amount
paid
up
on
the
deferred
shares.
Redemption
is
at
the
sole
discretion
of
the
Company.
Deferred
shares
carry
no
voting
rights
and
have
no
rights
to
dividends
or
other
income
distributions.
In
the
event
of
a
winding-up,
repayment
in
respect
of
the
deferred
shares
ranks
after
repayment
of
amounts
paid
up
on
the
ordinary
shares
of
the
Company.
The
deferred
shares
are
entitled
to
repayment
of
amounts
paid
up,
but
have
no
entitlement
to
any
surplus.
Other
reserves
The
other
reserves
arose
from
the
cancellation
of
£173m
of
share
premium
account
by
the
Company
in
1993
and
are
non-distributable.
Translation
reserve
The
translation
reserve
comprises
all
foreign
exchange
differences
arising
from
the
translation
of
the
financial
statements
of
foreign
operations,
as
well
as
from
the
translation
of
liabilities
that
hedge
the
group’s
net
investment
in
foreign
subsidiaries.
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
86
Financial
statements
//
Notes
forming
part
of
the
financial
statements
22.
Acquisitions
and
disposals
Acquisitions
2009
During
the
period,
the
group
completed
the
acquisition
of
the
Iberian
sugar
business,
Azucarera
Ebro,
together
with
a
small
feed
mill
in
the
UK
and
a
sugar
cane
farm
in
Zambia,
as
well
as
a
number
of
other
small
acquisitions.
Costs
associated
with
these
acquisitions
are
included
within
cash
and
deferred
consideration.
Deferred
consideration
was
paid
in
respect
of
the
beet
sugar
operations
acquired
in
north
east
China
last
year.
The
acquisitions
had
the
following
effect
on
the
group’s
assets
and
liabilities:
Pre-acquisition
Recognised
carrying
values
on
amounts
acquisition
Note
£m
£m
net
assets
Intangible
assets
8
5
54
Property,
plant
&
equipment
9
202
218
Biological
assets
3
8
Joint
ventures
and
associates
12
12
Other
non-current
receivables
52
52
Inventories
156
169
Trade
and
other
receivables
61
61
Other
financial
assets
2
2
Cash
and
cash
equivalents
1
1
Trade
and
other
payables
(130)
(130)
Overdrafts
(4)
(4)
Interest-bearing
loans
(121)
(121)
Taxation
37
23
Provisions
(92)
(92)
Net
identifiable
assets
and
liabilities
184
253
Goodwill
18
Minority
interests
(3)
Total
consideration
268
satisfied
by
Cash
consideration
235
Deferred
consideration
17
Consideration
previously
paid
16
net
cash
Cash
consideration
235
Net
overdrafts
acquired
3
Cash
consideration
in
respect
of
prior
year
acquisitions
11
249
The
differences
between
pre-acquisition
carrying
amounts
and
amounts
recognised
on
acquisition,
which
include
fair
value
adjustments
to
the
assets
and
liabilities
acquired,
are
£49m
of
intangibles
recognised,
a
£16m
upward
adjustment
to
property,
plant
&
equipment,
a
£5m
upward
adjustment
to
biological
assets,
a
£13m
revaluation
of
inventories
(including
£12m
in
respect
of
the
Azucarera
acquisition)
and
a
£14m
adjustment
to
deferred
tax.
Goodwill
arising
on
the
acquisitions
is
attributable
to
the
anticipated
profitability
from
the
sale
of
the
group’s
existing
products
in
new
markets,
and
the
anticipated
future
technological
and
operational
synergies
from
the
combinations.
The
acquisitions
in
aggregate
contributed
revenue
of
£136m
and
adjusted
profit
before
tax
of
£1m
for
the
period
between
the
dates
of
acquisition
and
12
September
2009.
Aggregate
contributions
to
revenue
and
profit
before
tax
had
the
acquisitions
occurred
at
the
beginning
of
the
period
have
not
been
disclosed,
as
appropriately
consolidated
financial
information
prepared
under
Adopted
IFRS
is
not
available.
The
net
cash
of
£249m
in
the
acquisition
table
above
differs
from
the
cash
flow
on
purchase
of
subsidiaries,
joint
ventures
and
associates
shown
in
the
cash
flow
statement
by
£17m.
The
difference
relates
to
amounts
paid
for
investments
in
joint
ventures.
The
goodwill
of
£18m
in
the
acquisition
table
above
differs
from
the
amount
shown
for
business
combinations
in
note
8
by
£10m.
This
relates
to
the
loss
on
disposal
of
the
manufacturing
plant
in
Portugal,
included
in
the
disposals
table
in
this
note,
which
has
been
treated
as
goodwill
arising
on
the
acquisition
of
the
remaining
Gilde
businesses.
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
87
22.
Acquisitions
and
disposals
continued
Acquisition
of
Azucarera
Ebro
The
acquisition
of
Azucarera
was
completed
on
30
April
2009.
It
contributed
a
net
profit
of
£1m
to
the
consolidated
adjusted
net
profit
for
the
year
since
acquisition
date.
The
contribution
to
consolidated
revenues
and
net
profit
had
the
acquisition
occurred
at
the
beginning
of
the
year
has
not
been
disclosed,
as
it
would
be
impractical
to
determine
these
amounts.
This
is
because
the
entity
acquired
did
not
prepare
consolidated
financial
statements
and
reported
to
a
31
December
year
end.
2008
During
2008,
the
group
completed
the
merger
of
Ryvita
and
Jordans
and
the
acquisition
of
certain
of
the
European
assets
of
Gilde
Bakery
Ingredients,
11
beet
sugar
factories
in
north
east
China
and
the
KR
Castlemaine
meat
and
smallgoods
business
in
Australia.
The
group
also
completed
a
number
of
other
small
acquisitions.
The
acquisitions
had
the
following
effect
on
the
group’s
assets
and
liabilities:
Pre-acquisition
Recognised
carrying
values
on
amounts
acquisition
Note
£m
£m
net
assets
Intangible
assets
8
20
101
Property,
plant
&
equipment
9
142
108
Inventories
54
56
Trade
and
other
receivables
40
40
Cash
and
cash
equivalents
4
4
Trade
and
other
payables
(49)
(49)
Overdrafts
(1)
(1)
Interest-bearing
loans
and
borrowings
(32)
(32)
Taxation
(1)
(21)
Employee
benefits
(2)
(2)
Provisions
(2)
(2)
Net
identifiable
assets
and
liabilities
173
202
Goodwill
128
Minority
interests
(5)
Total
consideration
325
satisfied
by
Cash
consideration
189
Deferred
consideration
97
Interests
in
subsidiaries
24
Interest
in
associate
15
net
cash
Cash
consideration
189
Net
overdrafts
acquired
(3)
Cash
consideration
in
respect
of
prior
year
acquisitions
6
192
The
differences
between
pre-acquisition
carrying
amounts
and
amounts
recognised
on
acquisition,
which
include
fair
value
adjustments
to
the
assets
and
liabilities
acquired,
were
£81m
of
intangibles
recognised,
a
£34m
downward
adjustment
to
property,
plant
&
equipment,
a
£20m
adjustment
to
deferred
tax
and
a
£2m
revaluation
of
inventories.
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
88
Financial
statements
//
Notes
forming
part
of
the
financial
statements
22.
Acquisitions
and
disposals
continued
Disposals
and
closure
of
business
During
the
year,
the
group
disposed
of
its
US
packaged
oils
business
to
a
newly
formed
joint
venture
with
Archer
Daniels
Midland
Company
Inc,
Stratas
Foods.
The
group
also
sold
the
former
Gilde
Bakery
Ingredients
business
in
Iberia
together
with
our
manufacturing
plant
in
Portugal
and
the
Pongola
mill
in
South
Africa.
Costs
associated
with
these
disposals
are
included
within
cash
and
deferred
consideration.
The
disposals
had
the
following
effect
on
the
group’s
assets
and
liabilities:
2009
2008
carrying
carrying
values
values
£m
£m
net
assets
Intangible
assets
15
Property,
plant
&
equipment
28
17
Other
non-current
receivables
16
Inventories
5
3
Trade
and
other
receivables
7
5
Trade
and
other
payables
(8)
(3)
Intercompany
receivables
1
Taxation
(1)
(5)
Employee
benefits
(1)
Net
identifiable
assets
and
liabilities
47
32
Goodwill
21
Recycle
of
effect
of
movements
in
foreign
exchange
1
(Loss)/profit
on
sale
and
closure
of
business
(65)
5
Total
consideration
(18)
59
satisfied
by
Cash
consideration
22
59
Deferred
consideration
11
Provisions
made
(65)
Interest
in
joint
venture
14
net
cash
Cash
consideration
22
59
Provisions
made
on
sale
and
closure
of
businesses
of
£65m
comprise
£37m
of
PP&E
impairment
(see
note
9),
£6m
of
operating
intangible
impairment
(see
note
8)
and
£22m
of
other
rationalisation
costs.
In
August
2009,
agreement
was
reached
to
sell
the
Polish
sugar
business,
completion
of
which
is
subject
to
competition
clearance.
Assets
and
liabilities
of
this
business
have
been
included
in
the
consolidated
balance
sheet
as
‘held
for
sale’
pending
competition
clearance.
The
net
cash
of
£22m
in
the
disposal
table
above
differs
from
the
cash
flow
on
sale
of
subsidiaries,
joint
ventures
and
associates
shown
in
the
cash
flow
statement
by
£123m.
Of
this
difference,
£122m
relates
to
advance
consideration
received
in
respect
of
the
agreement
to
dispose
of
the
Polish
sugar
business,
as
described
above.
The
remaining
£1m
was
received
in
respect
of
a
reduction
in
stake
in
a
joint
venture.
23.
Share-based
payments
The
group
had
the
following
equity-settled
share-based
payment
plans
in
operation
during
the
period:
Associated
British
Foods
plc
1994
Share
Option
Scheme
(‘the
1994
Scheme’)
This
scheme
was
established
by
the
Company
in
1994.
Under
the
terms
of
the
1994
Scheme,
options
to
purchase
ordinary
shares
in
the
Company
were
granted
to
selected
qualifying
employees
over
the
ten
years
from
November
1994.
The
options
must
be
held
for
five
years
before
they
become
exercisable.
The
exercise
of
options
is
not
subject
to
specified
performance
criteria.
Associated
British
Foods
2000
Executive
Share
Option
Scheme
(‘the
2000
Scheme’)
This
scheme
was
approved
and
adopted
by
the
Company
at
the
annual
general
meeting
held
on
15
December
2000.
Under
the
terms
of
the
2000
Scheme,
options
to
purchase
ordinary
shares
in
the
Company
may
be
granted
to
selected
employees
over
the
ten
years
from
15
December
2000.
The
options
must
be
held
for
three
years
before
they
become
exercisable.
The
exercise
of
an
option
under
this
scheme
will,
in
accordance
with
institutional
shareholder
guidelines,
be
conditional
on
the
achievement
of
performance
criteria
which
are
based
on
growth
in
the
group’s
profits.
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
89
23.
Share-based
payments
continued
Associated
British
Foods
Executive
Share
Incentive
Plan
2003
(‘the
Share
Incentive
Plan’)
The
Share
Incentive
Plan
was
approved
and
adopted
by
the
Company
at
the
annual
general
meeting
held
on
5
December
2003.
It
takes
the
form
of
conditional
allocations
of
shares
which
will
be
released
if,
and
to
the
extent
that,
certain
performance
targets
are
satisfied
over
a
three-year
performance
period.
Further
information
regarding
the
operation
of
the
above
plans
can
be
found
on
pages
43
to
46
of
the
Remuneration
report.
Details
of
the
group’s
equity-settled
share-based
payment
plans
are
as
follows:
Balance
outstanding
Balance
Options
at
the
outstanding
exercisable
beginning
Granted/
Expired/
at
the
end
at
the
end
of
the
year
awarded
Exercised
Vested
lapsed
of
the
year
of
the
year
2009
the
1994
Scheme
180,000
180,000
180,000
the
2000
Scheme
177,500
177,500
177,500
the
Share
Incentive
Plan
3,591,785
2,249,486
(195,376)
(503,814)
5,142,081
N/a
2008
the
1994
Scheme
512,110
(317,110)
(15,000)
180,000
180,000
the
2000
Scheme
187,500
(10,000)
177,500
177,500
the
Share
Incentive
Plan
1,895,475
1,828,504
(132,194)
3,591,785
N/a
Weighted
Range
of
average
exercise
remaining
Weighted
average
exercise
price
of
options
prices
for
contractual
Outstanding
options
life
of
at
the
Outstanding
Exercisable
outstanding
outstanding
beginning
at
the
end
at
the
end
at
the
end
options
at
the
of
the
year
Granted
Exercised
Forfeited
Expired
of
the
year
of
the
year
of
the
year
end
of
the
year
pence
pence
pence
pence
pence
pence
pence
pence
years
2009
the
1994
Scheme
530.50
530.50
530.50
497–564
2.7
the
2000
Scheme
484.00
484.00
484.00
484.00
1.3
2008
the
1994
Scheme
538.01
541.16
561.50
530.50
530.50
497–564
3.8
the
2000
Scheme
484.00
484.00
484.00
484.00
484.00
2.3
No
share
options
were
exercised
during
the
year.
The
weighted
average
market
price
for
share
options
exercised
during
2008
was
876
pence.
Ordinary
shares
already
issued
and
subject
to
option
under
the
1994
Scheme
and
the
2000
Scheme,
or
subject
to
allocation
under
the
Share
Incentive
Plan,
are
held
in
a
separate
trust.
The
trust
is
funded
by
the
Company.
At
12
September
2009
the
trust
held
3,906,757
(2008
2,102,133)
ordinary
shares
of
the
Company.
Fair
values
The
weighted
average
fair
values
for
the
1994
Scheme
and
the
2000
Scheme
were
determined
using
a
binomial
lattice
model
(for
share
options)
or
by
taking
the
market
price
of
the
shares
at
the
time
of
grant
and
discounting
for
the
fact
that
dividends
are
not
paid
during
the
vesting
period
(for
conditional
allocations
of
shares).
The
weighted
average
fair
value
of
the
shares
awarded
under
the
Share
Incentive
Plan
during
the
year
was
610
pence
(2008
837
pence)
and
the
weighted
average
share
price
was
656
pence
(2008
900
pence).
The
dividend
yield
used
was
2.5%.
No
options
were
granted
under
the
1994
Scheme
or
the
2000
Scheme
in
either
2008
or
2009.
In
accordance
with
the
transitional
provisions
of
IFRS
1,
the
group
has
recognised
an
expense
in
respect
of
all
grants
under
these
plans
made
after
7
November
2002
and
unvested
at
18
September
2004.
The
group
recognised
a
total
equity-settled
share-based
payment
expense
of
£5m
(2008
£5m).
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
90
Financial
statements
//
Notes
forming
part
of
the
financial
statements
24.
Analysis
of
net
debt
At
At
13
September
Acquisitions/
Exchange
12
September
2008
Cash
flow
disposals
adjustments
2009
£m
£m
£m
£m
£m
Cash
at
bank
and
in
hand,
cash
equivalents
and
overdrafts
210
137
14
361
Short-term
borrowings
(140)
(283)
(119)
(12)
(554)
Other
current
investments
9
(12)
2
1
Loans
over
one
year
(870)
100
(2)
(34)
(806)
(791)
(58)
(119)
(31)
(999)
Cash
and
cash
equivalents
comprise
cash
balances,
call
deposits
and
investments
with
original
maturities
of
three
months
or
less.
Bank
overdrafts
that
are
repayable
on
demand
and
form
an
integral
part
of
the
group’s
cash
management
are
included
as
a
component
of
cash
and
cash
equivalents
for
the
purpose
of
the
cash
flow
statement.
£8m
of
cash
at
bank
and
in
hand
disclosed
above
is
included
within
assets
held
for
sale
(see
note
15).
25.
Financial
instruments
a)
Carrying
amount
and
fair
values
of
financial
assets
and
liabilities
2009
2008
Carrying
Carrying
amount
Fair
value
amount
Fair
value
£m
£m
£m
£m
financial
assets
Cash
and
cash
equivalents
391
391
348
348
loans
and
receivables:
Trade
and
other
receivables
1,021
1,021
992
992
Other
non-current
receivables
140
140
75
75
at
fair
value
through
profit
or
loss:
Other
current
investments
9
9
Derivative
financial
assets
not
designated
in
a
cash
flow
hedging
relationship:
currency
derivatives
2
2
2
2
commodity
derivatives
3
3
1
1
designated
cash
flow
hedging
relationships:
Derivative
financial
assets
designated
and
effective
as
cash
flow
hedging
instruments:
currency
derivatives
6
6
33
33
commodity
derivatives
1
1
18
18
total
financial
assets
1,564
1,564
1,478
1,478
financial
liabilities
financial
liabilities
at
amortised
cost:
Trade
and
other
payables
(1,248)
(1,248)
(1,234)
(1,234)
Secured
redeemable
debenture
stock
(150)
(184)
(150)
(176)
Secured
bank
loans
(144)
(142)
(137)
(141)
Unsecured
bank
loans
and
overdrafts
(1,083)
(1,130)
(847)
(847)
Finance
leases
(13)
(12)
(14)
(12)
Provisions
(421)
(421)
(174)
(174)
at
fair
value
through
profit
or
loss:
Derivative
financial
liabilities
not
designated
in
a
cash
flow
hedging
relationship:
currency
derivatives
(22)
(22)
commodity
derivatives
(2)
(2)
(1)
(1)
interest
rate
derivatives
(1)
(1)
(1)
(1)
designated
cash
flow
hedging
relationships:
Derivative
financial
liabilities
designated
and
effective
as
cash
flow
hedging
instruments:
currency
derivatives
(34)
(34)
(10)
(10)
commodity
derivatives
(17)
(17)
(13)
(13)
total
financial
liabilities
(3,135)
(3,213)
(2,581)
(2,609)
net
financial
liabilities
(1,571)
(1,649)
(1,103)
(1,131)
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
91
25.
Financial
instruments
continued
The
financial
instruments
shown
above
include
£17m
trade
and
other
receivables
(2008
£nil),
£8m
cash
and
cash
equivalents
and
£21m
trade
and
other
payables
(2008
£nil)
that
are
classified
as
held
for
sale
at
year
end.
Other
financial
assets
on
the
face
of
the
balance
sheet
comprise
other
current
investments
and
derivative
assets.
Other
financial
liabilities
comprise
derivative
liabilities.
The
methods
and
assumptions
used
to
estimate
fair
values
of
financial
assets
and
liabilities
are
as
follows:
1.
Cash
and
cash
equivalents
have
been
stated
at
their
book
values
due
to
their
short
maturities
or
otherwise
immediate
or
short-term
access
and
realisability.
2.
Other
non-current
investments
(recorded
within
other
non-current
receivables)
comprise
minority
shareholdings
held
primarily
in
privately
owned,
unquoted
companies,
where
there
is
no
active
market
available
to
value
them.
Where
the
fair
value
of
the
equity
instruments
cannot
be
reliably
measured,
they
are
recorded
at
cost.
Where
shareholdings
are
held
in
publicly
quoted
companies,
bid
price
is
used
to
estimate
fair
value.
3.
The
fair
values
of
finance
lease
receivables
and
other
long-term
receivables
have
been
estimated
by
discounting
expected
future
cash
flows.
4.
The
fair
values
of
trade
receivables,
other
receivables
and
accrued
income
have
been
stated
at
their
book
values
due
to
their
short
maturities.
5.
Other
current
investments
primarily
comprise
debt
securities
and
time
deposits,
which
are
stated
at
fair
value,
based
on
cost
(for
instruments
similar
in
nature
to
cash
and
cash
equivalents)
or
on
current
market
prices.
6.
The
fair
value
of
derivatives
is
determined
either
by
reference
to
third-party
valuations
(usually
from
a
bank),
or
by
reference
to
readily
observable
market
prices.
The
group’s
derivatives
primarily
cover
a
period
of
no
more
than
12
months
from
the
balance
sheet
date,
and
information
derived
from
an
active
market
is
therefore
almost
always
available
to
assist
with
the
valuation
of
derivatives.
7.
The
fair
values
of
trade
payables,
other
payables
and
accruals
have
been
stated
at
their
book
values
due
to
their
short
maturities.
8.
The
fair
values
of
all
bank
loans,
overdrafts
and
debenture
stock
have
been
calculated
using
the
present
value
of
estimated
future
cash
flows.
9.
The
fair
values
of
finance
lease
creditors
have
been
estimated
by
discounting
expected
cash
flows.
10.
Provisions
are
measured
at
the
directors’
best
estimate
of
the
expenditure
required
to
settle
the
obligation
at
the
balance
sheet
date
and
are
discounted
to
present
value
where
the
effect
is
material.
Consequently,
the
fair
value
has
been
presented
as
book
value.
b)
Derivative
financial
instruments
The
carrying
amount
of
derivative
financial
instruments
at
the
reporting
date
set
out
below
is
classified
as
current
on
the
face
of
the
balance
sheet.
An
analysis
of
derivatives
that
are
designated
in
a
formal
hedging
relationship,
and
those
that
are
not,
is
shown
above.
2009
2008
Contractual/
Contractual/
notional
notional
amounts
Assets
Liabilities
amounts
Assets
Liabilities
£m
£m
£m
£m
£m
£m
Currency
derivatives
1,159
8
(56)
957
35
(10)
Commodity
derivatives
180
4
(19)
181
19
(14)
Interest
rate
derivatives
109
(1)
97
(1)
12
(76)
54
(25)
c)
Cash
flow
hedging
reserve
movements
The
following
table
indicates
the
cash
flow
hedging
reserve
balance
at
12
September
2009
and
the
periods
in
which
the
cash
flows
are
expected
to
occur.
The
periods
in
which
the
cash
flows
are
expected
to
impact
profit
or
loss
are
materially
the
same.
2009
2008
Currency
Commodity
Currency
Commodity
derivatives
derivatives
Total
derivatives
derivatives
Total
£m
£m
£m
£m
£m
£m
Within
six
months
13
4
17
(23)
1
(22)
Between
six
months
and
one
year
6
9
15
(2)
(2)
Between
one
and
two
years
(1)
(1)
Unrecognised
losses/(gains)
19
13
32
(24)
(1)
(25)
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
92
Financial
statements
//
Notes
forming
part
of
the
financial
statements
25.
Financial
instruments
continued
The
following
table
identifies
the
movements
in
the
cash
flow
hedging
reserve
during
the
year,
including
where
gains
and
losses
have
been
recognised
in
the
income
statement.
2009
2008
Currency
Commodity
Currency
Commodity
derivatives
derivatives
Total
derivatives
derivatives
Total
£m
£m
£m
£m
£m
£m
Opening
balance
(24)
(1)
(25)
3
(2)
1
Gains/(losses)
recognised
in
the
hedging
reserve
33
46
79
(1)
(9)
(10)
Gains/(losses)
arising
in
previous
years
that
reversed
(1)
1
Amount
removed
from
the
hedging
reserve
and
included
within
the
income
statement
due
to
settlement
of
contracts
recognised
in:
revenue
(34)
(1)
(35)
(26)
1
(25)
cost
of
sales
5
(11)
(6)
3
3
Amount
removed
from
the
hedging
reserve
and
included
within
a
non-financial
asset
due
to
settlement
of
contracts
recognised
in:
inventory
54
(17)
37
(7)
5
(2)
Deferred
tax
associated
with
movement
in
the
hedging
reserve
(15)
(3)
(18)
7
7
Effect
of
movements
in
foreign
exchange
(2)
3
1
Closing
balance
19
13
32
(24)
(1)
(25)
d)
Financial
risk
identification
and
management
The
group
is
exposed
to
the
following
financial
risks
from
its
use
of
financial
instruments:
market
risk;
credit
risk;
and
liquidity
risk.
The
group’s
financial
risk
management
process
seeks
to
enable
the
early
identification,
evaluation
and
effective
management
of
key
risks
facing
the
business.
Risk
management
policies
and
systems
have
been
established
and
are
reviewed
regularly
to
reflect
changes
in
market
conditions
and
the
group’s
activities.
The
group,
through
its
standards
and
procedures,
aims
to
develop
a
disciplined
and
constructive
control
environment
in
which
all
employees
understand
their
roles
and
obligations.
The
group
sources
and
sells
products
and
manufactures
goods
in
a
wide
variety
of
locations
around
the
world.
These
operations
expose
the
group
to
potentially
significant
price
volatility
in
the
financial
and
commodity
markets.
Trading
and
risk
management
teams
have
been
established
in
the
group’s
major
businesses
to
manage
this
exposure
by
entering
into
a
range
of
products,
including
physical
and
financial
forward
contracts,
futures,
and,
where
appropriate,
options.
These
teams
work
closely
with
group
Treasury
and
report
regularly
to
executive
management.
Treasury
operations
and
commodity
procurement
are
conducted
within
a
clearly
defined
framework
of
board-approved
policies
and
guidelines
to
manage
the
group’s
financial
and
commodity
risks.
Treasury
works
closely
with
the
group’s
procurement
teams
to
manage
commodity
risks.
Treasury
policy
seeks
to
ensure
that
adequate
financial
resources
are
available
to
the
group
at
all
times,
for
the
management
and
development
of
the
group’s
businesses,
whilst
effectively
managing
its
market
risk
and
credit
risk.
The
group’s
risk
management
policy
explicitly
forbids
the
use
of
financial
or
commodity
derivatives
(outside
its
risk
management
framework
of
mitigating
financial
and
commodity
risks)
for
speculative
purposes.
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
93
25.
Financial
instruments
continued
e)
Foreign
currency
translation
The
group
presents
its
financial
statements
in
sterling.
As
a
result
of
its
diverse
worldwide
operations,
the
group
is
exposed
to
foreign
currency
translation
risk
where
overseas
operations
have
a
functional
currency
other
than
sterling.
Changes
in
foreign
currency
exchange
rates
impact
the
translation
into
sterling
of
both
the
income
statement
and
net
assets
of
these
foreign
operations.
Where
appropriate,
the
group
finances
its
operations
by
borrowing
locally
in
the
functional
currency
of
its
operations.
This
reduces
net
asset
values
reported
in
functional
currencies
other
than
sterling,
thereby
reducing
the
economic
exposure
to
fluctuations
in
foreign
currency
exchange
rates
on
translation.
The
group
also
finances
its
operations
by
obtaining
funding
at
group
level
through
external
borrowings,
and
where
they
are
not
in
sterling,
these
borrowings
are
designated
as
net
investment
hedges.
This
enables
gains
and
losses
arising
on
retranslation
of
these
foreign
currency
borrowings
to
be
charged
to
equity,
providing
a
partial
offset
in
equity
against
the
gains
and
losses
arising
on
translation
of
the
net
assets
of
foreign
operations.
The
group
does
not
actively
hedge
the
translation
impact
of
foreign
exchange
rate
movements
on
the
income
statement
(other
than
via
the
partial
economic
hedge
arising
from
the
servicing
costs
on
non-sterling
borrowings),
nor
does
it
use
derivatives
to
hedge
its
net
investments
in
foreign
operations.
The
group
also
designates
certain
of
its
intercompany
loan
arrangements
as
quasi-equity
for
the
purposes
of
IAS
21.
The
effect
of
the
designation
is
that
any
foreign
exchange
volatility
arising
within
the
borrowing
entity
and/or
the
lending
entity
is
accounted
for
directly
within
equity.
The
group
has
foreign
currency
borrowings
that
have
been
designated
as
hedges
of
its
net
investment
in
foreign
operations
in
euros
and
US
dollars.
The
value
of
these
financial
liabilities
used
as
hedging
instruments
at
the
balance
sheet
date
was:
2009
2008
£m
£m
Euro
229
285
US
dollar
279
190
508
475
The
foreign
exchange
loss
of
£27m
(2008
£58m
loss)
on
retranslation
of
these
loans
has
been
taken
to
the
translation
reserve
on
consolidation.
f)
Market
risk
Market
risk
is
the
risk
of
movements
in
the
fair
value
of
future
cash
flows
of
a
financial
instrument
or
forecast
transaction
as
underlying
market
prices
change.
The
group
is
exposed
to
changes
in
the
market
price
of
commodities,
interest
rates
and
foreign
exchange
rates.
These
risks
are
known
as
‘transaction’
(or
recognised)
exposures
and
‘economic’
(or
forecast)
exposures.
(i)
Commodity
price
risk
Commodity
price
risk
arises
from
the
procurement
of
raw
materials
and
the
consequent
exposure
to
changes
in
market
prices.
The
group
purchases
a
wide
range
of
commodities
in
the
ordinary
course
of
business.
Exposure
to
changes
in
the
market
price
of
certain
of
these
commodities
including
wheat,
edible
oils,
soya
beans,
meat,
sugar
raws,
cocoa,
rice,
tea
and
energy
is
managed
through
the
use
of
forward
physical
contracts
and
hedging
instruments,
including
futures
and
options
contracts,
primarily
to
convert
floating
or
indexed
prices
to
fixed
prices.
The
use
of
such
contracts
to
hedge
commodity
exposures
is
governed
by
the
group’s
risk
management
policies
and
is
continually
monitored
by
group
Treasury.
Commodity
derivatives
also
provide
a
way
to
meet
customers’
pricing
requirements
whilst
achieving
a
price
structure
consistent
with
the
group’s
overall
pricing
strategy.
Some
of
the
group’s
commodity
derivatives
are
treated
as
‘own
use’
contracts,
which
are
outside
the
scope
of
IAS
39,
since
they
are
both
entered
into,
and
continue
to
be
held,
for
the
purposes
of
the
group’s
ordinary
operations,
and
are
not
net
settled
(the
group
takes
physical
delivery
of
the
commodity
concerned).
‘Own
use’
contracts
do
not
require
accounting
entries
until
the
commodity
purchase
actually
crystallises.
Certain
other
commodity
derivatives
are
accounted
for
as
cash
flow
hedges
where
the
forecast
transaction
is
highly
probable
and
the
hedge
is
assessed
as
effective.
The
group
obtains
hedge
accounting
for
the
majority
of
these
contracts.
Some
commodity
derivatives
are
not
eligible
for
treatment
as
‘own
use’
contracts
and
are
not
contracts
for
which
the
strict
requirements
of
hedge
accounting
under
IAS
39
are
able
to
be
satisfied.
This
occurs
typically
where
the
group
does
not
take
physical
delivery
of
the
commodity
concerned.
While
such
commodity
derivatives
are
used
only
where
the
business
believes
they
provide
an
economic
hedge
of
an
underlying
exposure,
formal
hedge
accounting
may
not
be
possible
for
reasons
including:
where
the
derivatives
are
in
respect
of
a
similar
but
different
commodity
to
that
being
hedged;
where
exchange-traded
derivatives
are
used
that
are
not
sufficiently
close
in
all
respects
(for
example
quality
attributes)
to
the
business
requirement;
or
where
the
exchange
used
is
foreign
to
the
business.
Where
hedge
accounting
for
commodity
derivatives
within
the
scope
of
IAS
39
is
not
available,
the
instruments
are
classified
as
held
for
trading
and
are
marked
to
market
through
the
income
statement.
The
majority
of
the
group’s
forward
physical
contracts
and
commodity
derivatives
have
original
maturities
of
less
than
one
year.
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
94
Financial
statements
//
Notes
forming
part
of
the
financial
statements
25.
Financial
instruments
continued
Sensitivity
analysis
The
following
sensitivity
analysis
shows
the
impact
on
the
group’s
results
and
the
group’s
equity
of
changes
in
commodity
market
prices
as
a
result
of
entering
into
financial
instruments
(including
derivatives).
The
only
financial
assets
and
liabilities
expected
to
show
any
sensitivity
in
this
respect
are
commodity
derivatives.
The
sensitivity
chosen
is
a
20%
increase
in
the
forward
curves
for
various
commodity
prices
as
if
they
had
occurred
on
12
September
2009.
For
as
long
as
the
group
continues
to
make
limited
use
of
options,
a
20%
decrease
in
forward
prices
would
produce
a
broadly
equal
and
opposite
impact
on
profit
and
equity
to
that
shown.
The
movement
of
forward
price
curves
by
20%
is
considered
to
be
a
reasonable
approximation
of
how
much
markets
might
typically
move,
on
average,
over
any
given
year,
notwithstanding
that
the
increases
in
some
commodity
prices
during
the
past
year
have
been
significantly
greater
than
this.
The
sensitivity
analysis
addresses
the
impact
on
year
end
financial
assets
and
liabilities,
and
is
not
an
estimate
of
what
profit
might
have
been
if
commodity
prices
had
been
uniformly
different
throughout
the
year.
The
following
assumptions
have
been
applied
in
the
calculation
of
these
sensitivities,
which
are
presented
before
taxation
and
minority
interests:
all
qualifying
cash
flow
hedges
at
12
September
2009
will
continue
to
be
fully
effective
in
achieving
cash
flow
hedge
accounting;
and
commodity
contracts
that
qualify
for
the
‘own
use’
treatment
continue
to
do
so.
This
sensitivity
therefore
has
no
impact
for
these
contracts.
2009
2008
impact
on
2009
impact
on
2008
profit
for
impact
on
profit
for
impact
on
the
year
total
equity
the
year
total
equity
+/-
£m
+/-
£m
+/-
£m
+/-
£m
20%
increase
in
commodity
prices
1
(8)
4
20
(ii)
Interest
rate
risk
Interest
rate
risk
comprises
two
primary
elements:
interest
price
risk
results
from
financial
instruments
bearing
fixed
interest
rates.
Changes
in
floating
interest
rates
therefore
affect
the
fair
value
of
these
fixed
rate
financial
instruments;
and
interest
cash
flow
risk
results
from
financial
instruments
bearing
floating
rates.
Changes
in
floating
interest
rates
affect
cash
flows
on
interest
receivable
or
payable.
The
group’s
policy
is
to
maintain
floating
rate
debt
for
the
majority
of
its
bank
finance,
although
it
periodically
assesses
its
position
with
respect
to
interest
price
and
cash
flow
risk
and
interest
rate
swaps
are
sometimes
entered
into
in
more
volatile
markets.
At
12
September
2009,
£592m
(43%)
(2008
£222m
and
19%)
of
total
debt
was
subject
to
fixed
rates
of
interest.
The
group’s
fixed
rate
debt
includes
the
US
Private
Placement
loan
of
£378m
(2008
£nil)
and
the
£150m
10
3
/
4
%
secured
redeemable
debenture
stock
2013
(2008
£150m).
Floating
rate
debt
comprises
bank
borrowings
bearing
interest
rates
fixed
in
advance,
for
various
time
periods
up
to
12
months,
by
reference
to
official
market
rates
(eg
LIBOR).
Sensitivity
analysis
Applying
a
100
basis
point
parallel
increase
in
the
interest
rate
yield
curve
as
if
it
had
occurred
on
12
September
2009
results
in
no
impact
on
profit
for
the
year
or
total
equity
(2008
no
impact
on
profit
or
total
equity).
The
following
assumptions
have
been
applied
in
the
calculation
of
this
sensitivity,
which
is
presented
before
taxation
and
minority
interests:
the
impact
of
this
sensitivity
has
only
been
recorded
for
changes
in
the
fair
value
of
derivative
financial
instruments
which
have
their
fair
value
gains
and
losses
recorded
within
the
financial
statements,
assets
available
for
sale,
and
other
current
investments,
as
the
group
does
not
designate
any
other
financial
asset
at
fair
value
through
profit
or
loss
and
these
are
the
only
significant
financial
instruments
whose
carrying
amounts
change
as
a
result
of
changes
in
interest
rates.
All
other
financial
instruments
are
carried
at
amortised
cost;
no
impact
is
recorded
in
respect
of
changes
in
interest
rates
on
employee
benefits
(including
pensions),
or
discount
rates
applied
to
financial
instruments
to
record
them
at
present
value;
and
all
qualifying
cash
flow
hedges
at
12
September
2009
will
continue
to
be
fully
effective
in
achieving
cash
flow
hedge
accounting.
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
95
25.
Financial
instruments
continued
A
second
sensitivity
analysis
calculates
the
impact
on
profitability
of
a
100
basis
point
increase
in
interest
rates
on
floating
rate
interest-bearing
loans
and
overdrafts,
and
on
cash
and
cash
equivalents
balances
on
which
variable
rates
of
interest
are
earned.
The
year
end
cash
balance
is
deducted
from
the
year
end
floating
rate
loans
and
overdrafts
balance.
This
net
floating
rate
borrowing
figure
is
multiplied
by
1%.
In
2009,
this
equated
to
an
interest
expense
of
£4m
before
taxation
and
minority
interests
(2008
£6m).
(iii)
Foreign
currency
risk
The
group
conducts
business
worldwide
and
consequently
in
many
foreign
currencies.
As
a
result,
it
is
exposed
to
movements
in
foreign
currency
exchange
rates
which
affect
the
group’s
transaction
costs.
The
group
also
publishes
its
financial
statements
in
sterling
and
is
therefore
exposed
to
movements
in
foreign
exchange
rates
on
the
translation
of
the
results
and
underlying
net
assets
of
its
foreign
operations
into
sterling.
Translation
risk
is
discussed
in
section
e)
above.
Transaction
risk
Currency
transaction
exposure
occurs
where
a
business
makes
sales
and
purchases
in
a
currency
other
than
its
functional
currency.
It
also
arises
where
monetary
assets
and
liabilities
of
a
business
are
not
denominated
in
its
functional
currency,
and
where
dividends
or
surplus
funds
are
remitted
from
overseas.
The
group’s
policy
is
to
match
transaction
exposures
wherever
possible,
and
to
hedge
actual
exposures
and
firm
commitments
as
soon
as
they
occur
by
using
forward
foreign
currency
contracts.
All
foreign
currency
instruments
contracted
with
non-group
entities
to
manage
transaction
exposures
are
undertaken
by
group
Treasury
or,
where
foreign
currency
controls
restrict
group
Treasury
acting
on
behalf
of
subsidiaries,
under
its
guidance.
Identification
of
transaction
exposures
is
the
responsibility
of
each
business.
The
group
uses
derivatives
(principally
forward
foreign
currency
contracts
and
time
options)
to
hedge
its
exposure
to
movements
in
exchange
rates
on
its
foreign
currency
trade
receivables
and
payables.
The
group
does
not
seek
formal
fair
value
hedge
accounting
for
such
transaction
hedges.
Instead,
such
derivatives
are
classified
as
held
for
trading
and
marked
to
market
through
the
income
statement.
This
offsets
the
income
statement
impact
of
the
retranslation
of
the
foreign
currency
trade
receivables
and
payables.
Economic
(forecast)
risk
The
group
also
uses
forward
foreign
currency
contracts
to
hedge
its
exposure
to
movements
in
exchange
rates
on
its
highly
probable
forecast
foreign
currency
sales
and
purchases
on
a
rolling
12
month
basis.
The
group
does
not
formally
define
the
proportion
of
highly
probable
forecast
sales
and
purchases
to
hedge,
but
agrees
an
appropriate
percentage
on
an
individual
basis
with
each
business
by
reference
to
the
group’s
risk
management
policies
and
prevailing
market
conditions.
The
group
documents
currency
derivatives
used
to
hedge
its
forecast
transactions
as
cash
flow
hedges.
To
the
extent
that
cash
flow
hedges
are
effective,
gains
and
losses
are
deferred
in
equity
until
the
forecast
transaction
occurs,
at
which
point
the
gains
and
losses
are
recycled
either
to
the
income
statement
or
to
the
non-financial
asset
acquired.
The
majority
of
the
group’s
currency
derivatives
have
original
maturities
of
less
than
one
year.
The
group’s
most
significant
currency
transaction
exposures
are:
sugar
prices
in
British
Sugar
UK
and
Poland
to
movements
in
the
sterling/euro
and
Polish
zloty/euro
exchange
rates
respectively;
sugar
prices
in
Illovo
to
movements
in
the
South
African
rand/US
dollar/euro
exchange
rates;
and
sourcing
for
Primark
costs
are
denominated
in
a
number
of
currencies,
predominantly
sterling,
euros
and
US
dollars.
Elsewhere,
a
number
of
businesses
make
sales
and
purchase
a
variety
of
raw
materials
in
foreign
currencies
(primarily
US
dollars
and
euros),
giving
rise
to
transaction
exposures.
In
all
other
material
respects,
businesses
tend
to
operate
in
their
functional
currencies
and,
as
a
result,
further
transaction
exposure
to
foreign
currency
exchange
rate
movements
is
modest.
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
96
Financial
statements
//
Notes
forming
part
of
the
financial
statements
25.
Financial
instruments
continued
The
analysis
of
the
group’s
foreign
currency
exposure
to
financial
assets
and
liabilities
by
currency
of
denomination
is
as
follows:
2009
Sterling
US
dollar
Euro
Other
Total
£m
£m
£m
£m
£m
financial
assets
Cash
and
cash
equivalents
5
48
13
8
74
Trade
and
other
receivables
2
21
45
6
74
Non-currency
derivatives
1
1
7
70
58
14
149
financial
liabilities
Trade
and
other
payables
(2)
(28)
(10)
(7)
(47)
Secured
bank
loans
(3)
(1)
(34)
(38)
Unsecured
bank
loans
and
overdrafts
(2)
(284)
(232)
(1)
(519)
Provisions
(1)
(1)
Non-currency
derivatives
(1)
(1)
(4)
(316)
(244)
(42)
(606)
currency
derivatives
Gross
amounts
receivable
17
500
92
55
664
Gross
amounts
payable
(9)
(14)
(455)
(19)
(497)
8
486
(363)
36
167
11
240
(549)
8
(290)
2008
Sterling
US
dollar
Euro
Other
Total
£m
£m
£m
£m
£m
financial
assets
Cash
and
cash
equivalents
3
24
17
8
52
Trade
and
other
receivables
1
15
85
8
109
Other
non-current
receivables
1
52
53
Non-currency
derivatives
1
1
4
41
154
16
215
financial
liabilities
Trade
and
other
payables
(1)
(77)
(179)
(5)
(262)
Secured
bank
loans
(1)
(44)
(45)
Unsecured
bank
loans
and
overdrafts
(190)
(287)
(477)
Provisions
(1)
(1)
Non-currency
derivatives
(1)
(1)
(1)
(268)
(468)
(49)
(786)
currency
derivatives
Gross
amounts
receivable
22
448
51
28
549
Gross
amounts
payable
(10)
(344)
(16)
(370)
22
438
(293)
12
179
25
211
(607)
(21)
(392)
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
97
25.
Financial
instruments
continued
The
following
significant
exchange
rates
applied
during
the
year:
Average
rate
Closing
rate
2009
2008
2009
2008
US
dollar
1.56
1.98
1.67
1.79
Euro
1.15
1.32
1.14
1.26
Rand
14.09
14.67
12.39
14.34
Renminbi
10.66
14.13
11.38
12.28
Australian
dollar
2.15
2.18
1.93
2.18
Sensitivity
analysis
The
following
sensitivity
analysis
illustrates
the
impact
that
a
10%
strengthening
of
the
group’s
operating
currencies
against
local
functional
currencies
would
have
had
on
profit
and
equity.
The
analysis
covers
currency
translation
exposures
at
year
end
on
businesses’
financial
assets
and
liabilities
that
are
not
denominated
in
the
functional
currencies
of
those
businesses.
A
similar
but
opposite
impact
would
be
felt
on
both
profit
and
equity
if
the
group’s
main
operating
currencies
weakened
against
local
functional
currencies
by
a
similar
amount.
The
following
assumption
has
been
applied
in
the
calculation
of
this
sensitivity,
which
is
presented
before
taxation
and
minority
interests:
the
exposure
to
foreign
exchange
gains
and
losses
on
translating
the
financial
statements
of
subsidiaries
into
sterling
is
not
included
in
this
sensitivity
analysis,
as
there
is
no
impact
on
the
income
statement,
and
the
gains
and
losses
are
recorded
directly
in
the
translation
reserve
in
equity
(see
below
for
a
separate
sensitivity).
2009
2008
impact
on
2009
impact
on
2008
profit
for
impact
on
profit
for
impact
on
the
year
total
equity
the
year
total
equity
10%
strengthening
against
other
currencies
of
+/-
£m
+/-
£m
+/-
£m
+/-
£m
Sterling
1
(2)
US
dollar
10
(54)
(4)
(55)
Euro
5
16
1
(6)
Other
(3)
(4)
(3)
(3)
A
second
sensitivity
analysis
calculates
the
impact
on
the
group’s
profit
before
tax
if
the
average
rates
used
to
translate
the
results
of
the
group’s
foreign
operations
into
sterling
were
adjusted
to
show
a
10%
strengthening
of
sterling.
A
similar
but
opposite
impact
would
be
felt
on
profit
before
tax
if
sterling
weakened
against
the
other
currencies
by
a
similar
amount.
2009
2008
impact
on
impact
on
profit
for
profit
for
the
year
the
year
10%
strengthening
of
sterling
against
+/-
£m
+/-
£m
US
dollar
4
(3)
Euro
(3)
(7)
Rand
(7)
(5)
Renminbi
3
(2)
Australian
dollar
(4)
2
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
98
Financial
statements
//
Notes
forming
part
of
the
financial
statements
25.
Financial
instruments
continued
g)
Credit
risk
Credit
risk
is
the
risk
that
counterparties
to
financial
instruments
do
not
perform
according
to
the
terms
of
the
contract
or
instrument.
The
group’s
businesses
are
exposed
to
counterparty
credit
risk
when
dealing
with
customers,
and
from
certain
financing
activities.
The
immediate
credit
exposure
of
financial
instruments
is
represented
by
those
financial
instruments
that
have
a
net
positive
fair
value
by
counterparty
at
12
September
2009.
The
group
considers
its
maximum
exposure
to
credit
risk
to
be:
2009
2008
£m
£m
Cash
and
cash
equivalents
391
348
Loans
and
receivables
(refer
to
note
25a)
1,161
1,067
Financial
assets
at
fair
value
through
profit
and
loss
other
current
investments
9
derivative
financial
assets
5
3
Designated
cash
flow
hedging
relationships
derivative
financial
assets
7
51
1,564
1,478
The
majority
of
cash
balances
and
short-term
deposits
are
held
with
strong
investment-grade
banks
or
financial
institutions.
As
at
12
September
2009,
there
were
no
significant
financial
guarantees
or
third-party
obligations
that
increased
the
credit
risk
of
the
financial
assets
set
out
above.
Although
the
group
has
seen
no
direct
evidence
of
changes
to
the
credit
risk
of
its
counterparties,
the
current
focus
on
financial
liquidity
in
all
international
markets
has
introduced
increased
financial
volatility.
The
group
uses
market
knowledge,
changes
in
credit
ratings
and
other
techniques
to
identify
significant
changes
to
the
financial
profile
of
its
counterparties.
Trade
and
other
receivables
Concentrations
of
credit
risk
are
limited
as
a
result
of
the
group’s
large
and
diverse
customer
base.
The
group
has
established
a
credit
policy
applied
by
each
business
under
which
the
credit
status
of
each
new
customer
is
reviewed
before
credit
is
advanced.
This
includes
external
credit
evaluations
where
possible
and
in
some
cases
bank
references.
Credit
limits
are
established
for
all
significant
or
high-risk
customers,
which
represent
the
maximum
amount
permitted
to
be
outstanding
without
requiring
additional
approval
from
the
appropriate
level
of
management.
Outstanding
debts
are
continually
monitored
by
each
business.
Credit
limits
are
reviewed
on
a
regular
basis,
and
at
least
annually.
Customers
that
fail
to
meet
the
group’s
benchmark
creditworthiness
may
only
transact
with
the
group
on
a
prepayment
basis.
Aggregate
exposures
are
monitored
at
group
level.
Many
of
the
group’s
customers
have
been
transacting
with
the
group
for
many
years
and
the
incidence
of
bad
debts
has
been
low.
Where
appropriate,
goods
are
sold
subject
to
retention
of
title
so
that,
in
the
event
of
non-payment,
the
group
may
have
a
secured
claim.
The
group
does
not
typically
require
collateral
in
respect
of
trade
and
other
receivables.
The
group
provides
for
impairment
of
financial
assets
including
trade
and
other
receivables
based
on
known
events,
and
makes
a
collective
provision
for
losses
yet
to
be
identified,
based
on
historical
data.
The
majority
of
the
provision
comprises
specific
amounts.
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
99
25.
Financial
instruments
continued
The
maximum
exposure
to
credit
risk
for
trade
and
other
receivables
at
the
reporting
date
by
geographic
region
of
origin
was:
2009
2008
£m
£m
UK
330
407
Europe
&
Africa
251
181
The
Americas
141
169
Asia
Pacific
299
235
1,021
992
Trade
receivables
can
be
analysed
as
follows:
2009
2008
gross
gross
£m
£m
Not
overdue
638
659
Up
to
1
month
past
due
186
122
Between
1
and
2
months
past
due
31
34
Between
2
and
3
months
past
due
8
18
More
than
3
months
past
due
31
37
Provision
for
doubtful
debts
(38)
(43)
At
12
September
2009
856
827
The
trade
receivables
shown
above
include
£9m
trade
receivables
that
are
classified
as
held
for
sale
at
year
end.
Based
on
past
experience,
the
group
believes
that
no
impairment
allowance
is
necessary
in
respect
of
trade
receivables
that
are
not
past
due.
Trade
and
other
receivables
are
stated
net
of
the
following
provision
for
irrecoverable
amounts:
2009
2008
£m
£m
Opening
balance
43
34
Amounts
provided
for
during
the
year
8
11
Amounts
released
during
the
year
(2)
(1)
Amounts
utilised
during
the
year
(12)
(3)
Acquisitions/(disposals)
1
1
Effect
of
movements
in
foreign
exchange
1
Closing
balance
38
43
No
trade
and
other
receivables
(2008
none)
were
written
off
directly
to
the
income
statement
in
the
year.
The
directors
consider
that
the
carrying
amount
of
trade
and
other
receivables
approximates
fair
value.
Cash,
cash
equivalents
and
other
current
investments
Banking
relationships
are
generally
limited
to
those
banks
that
are
members
of
the
core
relationship
group.
These
banks
are
selected
for
their
credit
status,
global
reach
and
their
ability
to
meet
the
businesses’
day-to-day
banking
requirements.
The
credit
ratings
of
these
institutions
are
monitored
on
a
continuing
basis.
In
locations
where
the
core
relationship
banking
group
cannot
be
used,
operating
procedures
including
choice
of
bank,
opening
of
bank
accounts
and
repatriation
of
funds
must
be
agreed
with
group
Treasury.
The
group
has
not
recorded
impairments
against
cash,
cash
equivalents
or
other
current
investments,
nor
have
any
recoverability
issues
been
identified
with
such
balances.
Such
items
are
typically
recoverable
on
demand
or
in
line
with
normal
banking
arrangements.
Other
financial
assets
Other
non-current
investments
are
typically
equity
investments
with
no
fixed
maturity
or
recoverability
date.
No
impairment
issues
have
been
identified
with
respect
to
other
non-current
investments.
Since
derivative
assets
are
recorded
at
fair
value,
either
through
profit
and
loss,
for
those
not
in
a
designated
cash
flow
hedging
relationship,
or
otherwise
through
the
hedging
reserve,
no
impairment
issues
have
been
identified.
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
100
Financial
statements
//
Notes
forming
part
of
the
financial
statements
25.
Financial
instruments
continued
h)
Liquidity
risk
Liquidity
risk
is
the
risk
that
the
group
will
encounter
difficulty
in
meeting
its
obligations
associated
with
its
financial
liabilities
as
they
fall
due.
Group
Treasury
is
responsible
for
monitoring
and
managing
liquidity
and
ensures
that
the
group
has
sufficient
headroom
in
its
committed
facilities
to
meet
unforeseen
or
abnormal
requirements.
The
group
also
has
access
to
uncommitted
facilities
to
assist
with
short-term
funding
requirements.
Available
headroom
is
monitored
via
the
use
of
detailed
cash
flow
forecasts
prepared
by
each
business,
which
are
reviewed
at
least
quarterly,
or
more
often,
as
required.
Actual
results
are
compared
to
budget
and
forecast
each
period,
and
variances
investigated
and
explained.
Particular
focus
is
given
to
management
of
working
capital.
Details
of
the
group’s
borrowing
facilities
are
given
in
section
i).
The
following
table
analyses
the
contractual
undiscounted
cash
flows
relating
to
financial
liabilities
at
the
balance
sheet
date
and
compares
them
to
carrying
amounts:
2009
Due
between
Due
within
6
months
Due
between
Due
between
Due
after
Contracted
Carrying
6
months
and
1
year
1
and
2
years
2
and
5
years
5
years
amount
amount
Note
£m
£m
£m
£m
£m
£m
£m
non-derivative
financial
liabilities
Trade
and
other
payables
19
(1,224)
(24)
(1,248)
(1,248)
Secured
redeemable
debenture
stock
18
(8)
(8)
(16)
(182)
(214)
(150)
Secured
bank
loans
18
(24)
(25)
(63)
(42)
(154)
(144)
Unsecured
bank
loans
and
overdrafts
18
(503)
(62)
(37)
(345)
(314)
(1,261)
(1,083)
Finance
lease
liabilities
26
(1)
(1)
(2)
(41)
(45)
(13)
Provisions
20
(198)
(50)
(33)
(108)
(52)
(441)
(421)
derivative
financial
liabilities
Currency
derivatives
(net
payments)
(95)
(9)
(104)
(56)
Commodity
derivatives
(net
payments)
23
50
(1)
72
(19)
Interest
rate
derivatives
(net
payments)
(1)
(1)
(1)
total
financial
liabilities
(2,031)
(128)
(151)
(679)
(407)
(3,396)
(3,135)
2008
Due
between
Due
within
6
months
Due
between
Due
between
Due
after
Contracted
Carrying
6
months
and
1
year
1
and
2
years
2
and
5
years
5
years
amount
amount
Note
£m
£m
£m
£m
£m
£m
£m
non-derivative
financial
liabilities
Trade
and
other
payables
19
(1,181)
(53)
(1,234)
(1,234)
Secured
redeemable
debenture
stock
18
(8)
(8)
(16)
(198)
(230)
(150)
Secured
bank
loans
18
(17)
(7)
(60)
(53)
(137)
(137)
Unsecured
bank
loans
and
overdrafts
18
(243)
(10)
(3)
(470)
(121)
(847)
(847)
Finance
lease
liabilities
26
(1)
(1)
(3)
(42)
(47)
(14)
Provisions
20
(32)
(43)
(14)
(84)
(1)
(174)
(174)
derivative
financial
liabilities
Currency
derivatives
(net
payments)
(3)
(9)
(1)
(13)
(10)
Commodity
derivatives
(net
payments)
7
14
7
28
(14)
Interest
rate
derivatives
(net
payments)
(3)
(3)
1
(5)
(1)
total
financial
liabilities
(1,481)
(119)
(87)
(808)
(164)
(2,659)
(2,581)
The
above
tables
do
not
include
forecast
data
for
liabilities
which
may
be
incurred
in
the
future
but
which
were
not
contracted
at
12
September
2009.
The
principal
reasons
for
differences
between
carrying
values
and
contractual
undiscounted
cash
flows
are
coupon
payments
on
the
secured
redeemable
debenture
stock
and
other
fixed
rate
debt
to
which
the
group
is
already
committed,
future
interest
payments
on
the
group’s
finance
leases,
and
cash
flows
on
derivative
financial
instruments
which
are
not
aligned
with
their
fair
value.
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
101
25.
Financial
instruments
continued
i)
Borrowing
facilities
The
group
has
substantial
borrowing
facilities
available
to
it.
The
undrawn
committed
facilities
available
at
12
September
2009
in
respect
of
which
all
conditions
precedent
have
been
met
amounted
to
£840m
(2008
£219m):
2009
2008
Facility
Drawn
Undrawn
Facility
Drawn
Undrawn
£m
£m
£m
£m
£m
£m
US$1.2bn
syndicated
facility
719
211
508
671
469
202
US
private
placement
378
378
£320m
syndicated
facility
320
320
British
Sugar
secured
redeemable
debenture
stock
150
150
150
150
European
Investment
Bank
120
120
120
120
Zambia
sugar
facilities
77
77
101
101
Other
83
71
12
65
48
17
1,847
1,007
840
1,107
888
219
Uncommitted
facilities
available
at
12
September
2009
were:
2009
2008
Facility
Drawn
Undrawn
Facility
Drawn
Undrawn
£m
£m
£m
£m
£m
£m
Money
market
lines
80
80
160
28
132
Illovo
facilities
203
113
90
186
63
123
China
banking
facilities
295
138
157
Other
275
119
156
238
155
83
853
370
483
584
246
338
In
addition
to
the
above
facilities
there
are
also
£67m
(2008
£93m)
of
undrawn
and
available
credit
lines
for
the
purposes
of
issuing
letters
of
credit
and
guarantees
in
the
normal
course
of
business.
The
group
also
has
£13m
(2008
£14m)
of
finance
lease
liabilities
which
are
not
included
in
the
tables
above,
but
which
are
included
in
the
group’s
interest-bearing
loans
and
overdrafts
in
note
18.
In
October
2008,
the
Company
negotiated
a
three-year
£320m
committed
facility
with
its
existing
banking
group
that
when
added
to
the
existing
US$1.2bn
of
committed
bank
facilities
provide
£1,039m
of
bank
finance.
Both
these
facilities
mature
in
October
2011.
In
addition
to
the
bank
debt,
in
March
2009
the
Company
issued
£378m
of
private
placement
notes
to
institutional
investors
in
the
US
and
Europe.
At
12
September
2009,
these
have
an
average
remaining
duration
of
6.2
years
and
an
average
fixed
coupon
of
7.1%.
The
other
significant
core
committed
debt
facilities
comprise
a
£150m
debenture
loan
and
a
£120m
EIB
loan
which
mature
in
2013
and
2015
respectively.
Uncommitted
bank
borrowing
facilities
are
normally
reaffirmed
by
the
banks
annually,
although
they
can
theoretically
be
withdrawn
at
any
time.
Refer
to
note
9
for
details
of
the
group’s
capital
commitments
and
to
note
27
for
a
summary
of
the
group’s
guarantees.
An
assessment
of
the
group’s
current
liquidity
position
is
given
in
the
‘Financial
review’
section
of
the
annual
report
on
page
25.
The
uncommitted
total
facility
of
£853m
in
the
table
above
differs
from
the
uncommitted
credit
lines
referred
to
in
the
Financial
review
by
£12m.
This
relates
to
the
net
amount
of
uncleared
receipts,
recognised
in
bank
overdrafts.
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
102
Financial
statements
//
Notes
forming
part
of
the
financial
statements
25.
Financial
instruments
continued
j)
Capital
management
The
capital
structure
of
the
group
is
presented
in
the
balance
sheet.
Note
21
provides
details
on
equity
and
note
18
on
loans
and
overdrafts.
Short
and
medium-term
funding
requirements
are
provided
by
a
variety
of
loan
and
overdraft
facilities,
both
committed
and
uncommitted,
with
a
range
of
counterparties
and
maturities.
Longer
term
funding
is
sourced
from
a
combination
of
these
facilities,
the
private
placement
notes
and
committed
syndicated
loan
facilities.
The
board’s
policy
is
to
maintain
a
strong
capital
base
so
as
to
maintain
investor,
creditor
and
market
confidence
and
to
enable
successful
future
development
of
the
business.
The
board
monitors
return
on
capital
by
division
and
determines
the
overall
level
of
dividends
payable
to
shareholders.
From
time
to
time
the
group
purchases
its
own
shares
in
the
market.
The
shares
are
purchased
to
satisfy
awards
under
the
group’s
share
option
scheme
and
long-term
incentive
plan.
Once
purchased,
shares
are
not
sold
back
into
the
market.
The
group
does
not
have
a
defined
share
buy-back
plan.
There
were
no
changes
to
the
group’s
approach
to
capital
management
during
the
year.
Neither
the
Company
nor
any
of
its
subsidiaries
are
subject
to
externally
imposed
capital
requirements.
26.
Lease
commitments
Operating
leases
The
group
acts
as
a
lessee,
lessor
and
sub-lessor
both
for
land
and
buildings
and
plant
&
machinery
under
operating
leases.
Sublease
receipts
of
£2m
(2008
£3m)
were
recognised
in
the
income
statement
in
the
period,
the
majority
relating
to
operating
leases.
The
total
of
future
minimum
sublease
receipts
expected
to
be
received
is
£34m
(2008
£29m).
Under
the
terms
of
the
lease
agreements,
no
contingent
rents
are
payable.
The
future
minimum
lease
payments
under
operating
leases
are
as
follows:
2009
2008
£m
£m
Within
one
year
100
87
Between
one
and
five
years
333
308
After
five
years
1,224
1,130
1,657
1,525
Finance
leases
Finance
lease
liabilities
are
payable
as
follows:
2009
2008
minimum
minimum
lease
2009
2009
lease
2008
2008
payments
interest
principal
payments
interest
principal
£m
£m
£m
£m
£m
£m
Within
one
year
1
1
1
1
Between
one
and
five
years
3
2
1
4
3
1
After
five
years
41
29
12
42
30
12
45
32
13
47
33
14
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
103
27.
Contingencies
Litigation
and
other
proceedings
against
companies
in
the
group
are
not
considered
material
in
the
context
of
these
financial
statements.
The
group
has
not
adopted
the
amendments
to
IAS
39
in
relation
to
financial
guarantee
contracts
which
apply
for
periods
commencing
on
or
after
1
January
2006.
Where
group
companies
enter
into
financial
guarantee
contracts
to
guarantee
the
indebtedness
of
other
group
companies,
the
group
considers
these
to
be
insurance
arrangements
and
accounts
for
them
as
such
in
accordance
with
IFRS
4.
In
this
respect,
the
guarantee
contract
is
treated
as
a
contingent
liability
until
such
time
as
it
becomes
probable
that
the
relevant
group
company
issuing
the
guarantee
will
be
required
to
make
a
payment
under
the
guarantee.
As
at
12
September
2009,
group
companies
have
provided
guarantees
in
the
ordinary
course
of
business
amounting
to
£597m
(2008
£196m).
28.
Related
parties
The
group
has
a
controlling
related
party
relationship
with
its
parent
company,
which
is
also
its
ultimate
parent
company
(see
note
30).
The
group
also
has
a
related
party
relationship
with
its
associates
and
joint
ventures
(see
note
30)
and
with
its
directors.
In
the
course
of
normal
operations,
related
party
transactions
entered
into
by
the
group
have
been
contracted
on
an
arm’s
length
basis.
Material
transactions
and
year
end
balances
with
related
parties
were
as
follows:
2009
2008
Sub
note
£000
£000
Charges
to
Wittington
Investments
Limited
in
respect
of
services
provided
by
the
Company
and
its
subsidiary
undertakings
201
271
Dividends
paid
by
ABF
and
received
in
a
beneficial
capacity
by:
(i)
trustees
of
the
Garfield
Weston
Foundation
1
6,142
6,063
(ii)
directors
of
Wittington
Investments
Limited
who
are
not
trustees
of
the
Foundation
806
780
(iii)
directors
of
the
Company
who
are
not
trustees
of
the
Foundation
and
are
not
directors
of
Wittington
Investments
Limited
2
12
15
(iv)
a
member
of
the
Weston
family
employed
within
the
ABF
group
3
596
576
Sales
to
fellow
subsidiary
undertakings
on
normal
trading
terms
4
2,246
2,438
Sales
to
a
company
with
common
key
management
personnel
5
4,448
3,551
Amounts
due
from
fellow
subsidiary
undertakings
on
normal
trading
terms
4
193
872
Amounts
due
from
a
company
with
common
key
management
personnel
5
508
332
Sales
to
joint
ventures
and
associates
on
normal
trading
terms
6
328,915
25,087
Purchases
from
joint
ventures
and
associates
on
normal
trading
terms
6
221,774
78,929
Amounts
due
from
joint
ventures
and
associates
6
95,068
13,270
Amounts
due
to
joint
ventures
and
associates
6
23,321
4,438
1.
The
Garfield
Weston
Foundation
(‘the
Foundation’)
is
an
English
charitable
trust,
established
in
1958
by
the
late
W
Garfield
Weston.
The
Foundation
has
no
direct
interest
in
the
Company,
but
as
at
12
September
2009
was
the
beneficial
owner
of
683,073
shares
(2008
683,073
shares)
in
Wittington
Investments
Limited
representing
79.2%
(2008
79.2%)
of
that
company’s
issued
share
capital
and
is,
therefore,
the
Company’s
ultimate
controlling
party.
At
12
September
2009
trustees
of
the
Foundation
comprised
two
children
and
two
grandchildren
of
the
late
W
Garfield
Weston
and
five
children
of
the
late
Garry
H
Weston.
2.
Details
of
the
directors
are
given
on
pages
28
and
29.
Their
beneficial
interests,
including
family
interests,
in
the
Company
and
its
subsidiary
undertakings
are
given
on
page
47.
Key
management
personnel
are
considered
to
be
the
directors,
and
their
remuneration
is
disclosed
within
the
Remuneration
report
on
page
44.
3.
A
member
of
the
Weston
family
who
is
employed
by
the
group
and
is
not
a
director
of
the
Company
or
Wittington
Investments
Limited
and
is
not
a
Trustee
of
the
Foundation.
4.
The
fellow
subsidiary
undertaking
is
Fortnum
and
Mason
plc.
5.
The
company
with
common
key
management
personnel
is
George
Weston
Limited,
in
Canada.
6.
Details
of
the
group’s
principal
joint
ventures
and
associates
are
set
out
in
note
30.
Amounts
due
from
joint
ventures
and
associates
comprise
£19m
of
finance
lease
receivables
due
from
a
joint
venture
(see
note
14)
and
£50m
of
loan
receivables
due
from
joint
ventures.
The
remainder
of
the
balance
is
trading
balances.
The
loan
receivables
are
all
non-current,
and
all
but
£1m
of
the
finance
lease
receivables
are
non-current.
29.
Subsequent
events
On
14
September
2009,
Illovo
concluded
a
ZAR
3bn
rights
issue
to
fund
further
expansion
projects
in
Africa.
The
issue
was
99.4%
subscribed.
ABF
took
up
its
51%
entitlement
at
a
cost
of
£126m.
The
rights
issue
reduces
the
group’s
consolidated
net
debt
by
£119m.
On
2
November
2009,
Twinings
announced
that
it
was
entering
a
period
of
consultation
with
employees
over
a
proposed
reorganisation
of
its
tea
manufacturing
operations.
The
charge
for
this
reorganisation
is
expected
to
be
£19m
and
will
be
included
in
the
income
statement
for
the
2009/10
financial
year.
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
104
Financial
statements
//
Notes
forming
part
of
the
financial
statements
The
group’s
interest
in
subsidiaries
are
all
equity
investments.
British
Sugar
(Overseas)
Limited
operates
subsidiaries
and
joint
ventures
in
Europe
and
Asia.
Other
than
this
company,
each
subsidiary
operates
mainly
in
its
country
of
incorporation.
30.
Group
entities
Control
of
the
group
The
largest
group
in
which
the
results
of
the
Company
are
consolidated
is
that
headed
by
Wittington
Investments
Limited,
the
accounts
of
which
are
available
at
Companies
House,
Crown
Way,
Cardiff
CF14
3UZ.
It
is
the
ultimate
holding
company,
is
incorporated
in
Great
Britain
and
is
registered
in
England.
At
12
September
2009
Wittington
Investments
Limited
together
with
its
subsidiary,
Howard
Investments
Limited,
held
431,515,108
ordinary
shares
(2008
431,515,108)
representing
in
aggregate
54.5%
(2008
54.5%)
of
the
total
issued
ordinary
share
capital
of
Associated
British
Foods
plc.
Significant
subsidiaries
A
list
of
the
group’s
significant
subsidiaries
is
given
below.
The
entire
share
capital
of
the
companies
listed
is
held
within
the
group
except
where
percentages
are
shown.
These
percentages
give
the
group’s
ultimate
interest
and
therefore
allow
for
the
situation
where
subsidiaries
are
owned
by
partly
owned
intermediate
subsidiaries.
manufacturing
activities
country
of
incorporation
AB
Agri
Limited
UK
AB
Brasil
Industria
e
comercio
de
Alimentos
LTDA
Brazil
AB
Enzymes
GmbH
Germany
AB
Enzymes
Oy
Finland
ABF
Grain
Products
Limited
UK
AB
Food
&
Beverages
Australia
Pty
Ltd
Australia
AB
Food
&
Beverages
Philippines,
Inc.
Philippines
AB
Food
&
Beverages
(Thailand)
Limited
Thailand
AB
Mauri
Food,
S.A.
Spain
AB
Mauri
India
(Private)
Limited
India
Abitec
Corporation
US
ABNA
(Shanghai)
Feed
Co.,
Ltd
China
AB
World
Foods
Limited
UK
ACH
Food
Companies,
Inc.
US
Alimentos
Capullo.S.de
R.L.de
C.V.
Mexico
Anzchem
Pty
Limited
Australia
Azucarera
Ebro,
S.L.U.
Spain
Bo
Tian
Sugar
Industry
Company
Limited
(65%)
China
British
Sugar
(Overseas)
Limited
UK
British
Sugar
plc
UK
BSO
Polska
S.A.
(98%)
Poland
Calsa
de
Colombia
S.A.S.
Colombia
Cereform
Limited
UK
Compania
Argentina
de
Levaduras
S.A.I.C
Argentina
Food
Investments
Limited
UK
Foods
International
S.A.S.
France
G.
Costa
and
Company
Limited
UK
George
Weston
Foods
Limited
Australia
George
Weston
Foods
(NZ)
Limited
New
Zealand
Germain’s
(Ireland)
Limited
Republic
of
Ireland
Germain’s
Technology
Group
NA
Inc.
US
Germain’s
Technology
Group
Polska
Sp.
z.o.o.
Poland
Guangxi
Bo
Hua
Food
Co.,
Ltd
(71%)
China
Guangxi
Boqing
Food
Co.,
Ltd
(60%)
China
Guangxi
Boxuan
Food
Co.,
Ltd
(70%)
China
Harbin
Mauri
Yeast
Co.,
Ltd
(85%)
China
Hebei
Mauri
Food
Co.,
Ltd
China
Illovo
Sugar
Limited
(51%)
South
Africa
Illovo
Sugar
(Malawi)
Limited
(39%)
Malawi
Innovative
Cereal
Systems
LLC.
US
manufacturing
activities
country
of
incorporation
Jacksons
of
Piccadilly
Limited
UK
Kilombero
Sugar
Company
Limited
(28%)
Tanzania
Liaoning
Liaohe
Aimin
Feed
Co.,
Ltd
China
Liaoning
Liaohe
Yingpeng
Feed
Co.,
Ltd
China
Maragra
Acucar
SARL
(38%)
Mozambique
Mauri
Fermentos
II,
SA
(96%)
Portugal
Mauri
La-Nga
Fermentation
Co.,
Ltd
(66%)
Vietnam
Mauri
Lanka
(Private)
Limited
Sri
Lanka
Mauri
Maya
Sanayi
A.S.
Turkey
Mauri
Products
Limited
UK
Patak’s
Breads
Limited
UK
Patak’s
Foods
Limited
UK
Premier
Nutrition
Products
Limited
UK
R.
Twining
&
Co.,
Ltd
US
R.
Twining
and
Company
Limited
UK
Serrol
Ingredients
Pty
Limited
Australia
Shanghai
AB
Food
&
Beverages
Co.,
Ltd
China
SPI
Pharma
Inc.
US
SPI
Pharma
S.A.S.
France
The
Billington
Food
Group
Limited
UK
The
Jordans
&
Ryvita
Company
Limited
(62%)
UK
Twinings
North
America
Inc.
US
Ubombo
Sugar
Limited
(31%)
Swaziland
Wander
AG
Switzerland
Yeast
Products
Company
Republic
of
Ireland
Zambia
Sugar
plc
(46%)
Zambia
retailing
activities
Lojas
Primark
Portugal-Exploracao,
Gastao
e
Administracao
de
Espacos
Comerciais
S.A.
Portugal
Primark
Republic
of
Ireland
Primark
Deutschland
GmbH
Germany
Primark
Netherlands
NV
Netherlands
Primark
NV
Belgium
Primark
Stores
Limited
UK
Primark
Tiendas
S.L.U.
Spain
investment
and
other
activities
ABF
European
Holdings
&
Co
SNC
Luxembourg
ABF
Investments
plc
UK
Talisman
Guernsey
Limited
Guernsey,
Channel
Islands
Financial
statements
//
Notes
forming
part
of
the
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
105
30.
Group
entities
continued
Interest
in
joint
ventures
and
associates
A
list
of
the
group’s
significant
interests
in
joint
ventures
and
associates
is
given
below:
Issued
ordinary
Country
of
share
capital
incorporation
Total
Group
%
Australasian
Lupin
Processing
Pty
Ltd
Australia
A$2
50
C.
Czarnikow
Limited
UK
£1,000,000
43
Chiltern
Bakeries
Limited
UK
£100
44
Compania
de
Melazas
Spain
€10,000
50
Frontier
Agriculture
Limited
UK
£36,000,104
50
Harper-Love
Adhesives
Corporation
US
US$13,200
50
Levaduras
Collico
S.A.
Chile
CLP1,834,390,000
50
Murray
Bridge
Bacon
Pty
Ltd
Australia
A$12,000,000
20
New
Food
Coatings
Pty
Ltd
Australia
A$150,000
50
Qingdao
Xinghua
Cereal
Oil
&
Foodstuff
Co.,
Ltd
China
CNY24,844,000
25
Roal
Oy
Finland
€3,196,000
50
Stratas
Foods
LLC
US
US$2
50
Uniferm
Verwaltungs
GmbH
Germany
€2
50
Vivergo
Fuels
Limited
UK
£60,800,000
45
There
is
no
significant
loan
capital
in
any
of
the
joint
ventures
or
associates.
Each
joint
venture
and
associate
carries
out
manufacturing
and
food
processing
activities
and
operates
mainly
in
its
country
of
incorporation.
The
companies
listed
herein
are
those
subsidiaries,
joint
ventures
and
associates
whose
results
or
financial
position,
in
the
opinion
of
the
directors,
principally
affected
the
figures
shown
in
these
annual
accounts
as
a
list
of
all
group
companies
would
result
in
information
of
excessive
length
being
given.
A
full
list
of
subsidiaries
will
be
annexed
to
the
next
annual
return
of
Associated
British
Foods
plc
delivered
to
the
Registrar
of
Companies.
31.
Accounting
estimates
and
judgements
Key
sources
of
estimation
uncertainty
In
applying
the
accounting
policies
detailed
on
pages
58
to
63,
management
has
made
appropriate
estimates
in
many
areas
and
the
actual
outcome
may
differ
from
those
calculated.
The
key
sources
of
estimation
uncertainty
at
the
balance
sheet
date
that
have
a
significant
risk
of
causing
material
adjustment
to
the
carrying
value
of
assets
and
liabilities
within
the
next
financial
year
are:
Forecasts
and
discount
rates
The
carrying
values
of
a
number
of
items
on
the
balance
sheet
are
dependent
on
estimates
of
future
cash
flows
arising
from
the
group’s
operations
which,
in
some
circumstances,
are
discounted
to
arrive
at
a
net
present
value:
the
carrying
value
of
goodwill
must
be
assessed
for
impairment
at
least
annually
and
also
when
there
is
an
indication
that
it
may
be
impaired.
This
assessment
involves
comparing
the
book
value
of
goodwill
with
its
recoverable
amount
(being
the
higher
of
its
value
in
use
and
its
fair
value
less
costs
to
sell).
Value
in
use
is
determined
with
reference
to
projected
future
cash
flows
discounted
at
an
appropriate
rate.
Both
the
projected
future
cash
flows
and
the
discount
rate
applied
involve
a
significant
degree
of
estimation
uncertainty;
and
the
realisation
of
deferred
tax
assets
recognised
in
the
balance
sheet
is
dependent
on
the
generation
of
sufficient
future
taxable
profits
in
the
jurisdictions
in
which
the
deferred
tax
assets
arise.
The
group
recognises
deferred
tax
assets
when
it
is
more
likely
than
not
that
they
will
be
recovered,
based
on
an
assessment
of
the
likelihood
of
there
being
sufficient
taxable
profits
in
the
future.
Post-retirement
benefits
The
group’s
defined
benefit
pension
schemes
and
similar
arrangements
are
assessed
annually
in
accordance
with
IAS
19.
The
accounting
valuation,
which
has
been
assessed
using
assumptions
determined
with
independent
actuarial
advice,
resulted
in
an
asset
of
£16m
and
a
liability
of
£122m
being
recognised
as
at
12
September
2009.
The
size
of
these
assets
and
liabilities
is
sensitive
to
the
market
value
of
the
assets
held
by
the
schemes,
to
the
discount
rate
used
in
assessing
actuarial
liabilities,
to
the
actuarial
assumptions
which
include
price
inflation,
rates
of
pension
and
salary
increases,
mortality
and
other
demographic
assumptions
and
to
the
level
of
contributions.
Further
details
are
included
in
note
12.
Provisions
As
described
in
the
accounting
policies
on
pages
58
to
63,
provisions
are
measured
at
the
directors’
best
estimate
of
the
expenditure
required
to
settle
the
obligation
at
the
balance
sheet
date.
These
estimates
are
made
taking
into
account
a
range
of
possible
outcomes.
Notes
forming
part
of
the
financial
statements
continued
for
the
year
ended
12
September
2009
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
106
Financial
statements
//
Notes
forming
part
of
the
financial
statements
31.
Accounting
estimates
and
judgements
continued
Property,
plant
&
equipment
residual
values
and
useful
lives
These
assets
are
written
down
to
their
estimated
residual
values
over
their
anticipated
useful
lives
using
the
straight-line
basis.
Management
reviews
residual
values
annually
considering
market
conditions
and
projected
disposal
values.
In
assessing
useful
lives,
maintenance
programmes
and
technological
innovations
are
considered.
The
carrying
value
of
property,
plant
&
equipment
is
disclosed
in
note
9.
Biological
assets
Cane
roots
valuation
the
escalated
average
cost
of
planting
cane
roots
is
adjusted
for
the
remaining
expected
life.
This
requires
an
estimation
by
management
of
the
average
number
of
ratoons
expected
from
the
crop.
The
carrying
value
of
cane
roots
is
disclosed
in
note
10.
Growing
cane
valuation
growing
cane
is
valued
using
the
estimated
sucrose
content
at
the
estimated
sucrose
price
for
the
following
season,
less
the
estimated
costs
for
harvesting
and
transport.
The
estimated
sucrose
content
requires
management
to
assess
the
expected
cane
and
sucrose
yields
for
the
following
season
considering
weather
conditions
and
harvesting
programmes.
In
assessing
the
estimated
sucrose
price,
management
is
required
to
assess
into
which
markets
the
forthcoming
crop
will
be
sold
and
assess
domestic
and
export
prices
as
well
as
the
related
foreign
currency
exchange
rates.
The
carrying
value
of
growing
cane
is
disclosed
in
note
10.
Cash
flow
hedge
accounting
The
group
enters
into
various
types
of
hedging
or
forward
contracts
for
the
buying
and
selling
of
currencies
and
commodities.
The
contracts
often
fall
within
the
scope
of
IAS
39
and
accordingly
have
to
be
marked
to
market.
Where
appropriate,
these
contracts
are
accounted
for
as
cash
flow
hedges,
which
allows,
to
the
extent
the
hedges
are
effective,
the
change
in
values
of
the
derivatives
to
be
deferred
in
equity.
In
order
to
achieve
and
maintain
cash
flow
hedge
accounting,
it
is
necessary
for
the
group
to
determine,
at
inception
and
on
an
ongoing
basis,
whether
a
forecast
transaction
is
highly
probable
and
whether
the
hedge
is
effective.
This
requires
both
subjective
and
objective
measures
of
determination.
Exceptional
items
The
directors
consider
that
items
of
income
or
expense
which
are
material
by
virtue
of
their
nature
and
amount
should
be
disclosed
separately
if
the
financial
statements
are
to
fairly
present
the
financial
position
and
financial
performance
of
the
entity.
The
directors
label
these
items
collectively
as
‘exceptional
items’.
Determining
which
transactions
are
to
be
considered
exceptional
in
nature
is
often
a
subjective
matter.
However,
circumstances
that
the
directors
believe
would
give
rise
to
exceptional
items
for
separate
disclosure
might
include
major
business
restructurings,
impairments
and
reversals
of
impairments.
All
exceptional
items
are
included
in
the
appropriate
income
statement
line
item
to
which
they
relate.
In
addition,
for
clarity,
separate
disclosure
is
made
of
all
exceptional
items
in
one
column
on
the
face
of
the
income
statement,
with
additional
explanation
in
the
notes.
Taxation
The
income
tax
expense
recorded
in
the
income
statement
is
dependent
on
the
tax
rates
in
effect
at
the
balance
sheet
date,
unless
new
tax
rates
have
been
enacted
or
substantively
enacted.
The
level
of
current
and
deferred
tax
recognised
is
also
dependent
on
subjective
judgements
as
to
the
outcome
of
decisions
to
be
made
by
the
tax
authorities
in
the
various
tax
jurisdictions
around
the
world
in
which
the
group
operates.
It
is
necessary
to
consider
the
extent
to
which
deferred
tax
assets
should
be
recognised
based
on
an
assessment
of
the
extent
to
which
they
are
regarded
as
recoverable.
Fair
values
on
acquisition
The
group
is
required
to
bring
acquired
assets
and
liabilities
on
to
the
consolidated
balance
sheet
at
their
fair
value.
Items
of
plant
and
equipment
and
the
associated
property
interests
often
have
long
operating
lives,
hence
determination
of
the
fair
values
can
require
a
significant
degree
of
judgement.
Acquisitions
often
also
result
in
significant
intangible
benefits
being
brought
into
the
group,
some
of
which
qualify
for
recognition
as
intangible
assets.
Other
such
benefits
do
not
meet
the
recognition
requirements
of
accounting
standards
and
form
part
of
goodwill.
Significant
judgement
can
be
required
in
the
assessment
and
valuation
of
these
intangible
assets,
often
with
reference
to
internal
data
and
models.
Professional
valuers
are
engaged
where
it
is
deemed
appropriate
to
do
so.
Fair
values
on
major
acquisitions
are
disclosed
in
note
22.
Financial
statements
//
Company
financial
statements
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
107
Company
balance
sheet
at
12
September
2009
2009
2008
Note
£m
£m
fixed
assets
Intangible
assets
1
39
44
Investments
in
subsidiaries
2
626
444
665
488
current
assets
Debtors
due
within
one
year
3
2,478
2,239
due
after
one
year
3
1,432
1,372
Cash
at
bank
and
in
hand
29
4
3,939
3,615
creditors:
amounts
falling
due
within
one
year
Bank
loans
and
overdrafts
unsecured
(216)
(34)
Other
creditors
4
(1,136)
(1,067)
Provisions
5
(122)
(2)
(1,474)
(1,103)
net
current
assets
2,465
2,512
total
assets
less
current
liabilities
3,130
3,000
creditors:
amounts
falling
due
after
one
year
Bank
loans
unsecured
(496)
(589)
Amounts
owed
to
subsidiaries
4
(2,421)
(2,119)
(2,917)
(2,708)
net
assets
excluding
pension
liability
213
292
Net
pension
liability
(8)
(6)
net
assets
205
286
capital
and
reserves
Issued
share
capital
6
47
47
Profit
and
loss
reserve
including
pension
reserve
6
158
239
equity
shareholders’
funds
205
286
The
financial
statements
on
pages
107
to
111
were
approved
by
the
board
of
directors
on
3
November
2009
and
were
signed
on
its
behalf
by:
Charles
Sinclair
,
Chairman
and
John
Bason
,
Director
.
Reconciliation
of
movements
in
equity
shareholders’
funds
for
the
year
ended
12
September
2009
2009
2008
£m
£m
Profit
for
the
financial
year
91
118
Net
movement
in
own
shares
held
(10)
8
Actuarial
losses
on
defined
benefit
pension
scheme
(1)
Dividends
(161)
(156)
net
reduction
in
equity
shareholders’
funds
(81)
(30)
Opening
equity
shareholders’
funds
286
316
closing
equity
shareholders’
funds
205
286
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
108
Financial
statements
//
Company
financial
statements
Accounting
policies
for
the
year
ended
12
September
2009
Basis
of
preparation
The
financial
statements
are
presented
in
sterling,
rounded
to
the
nearest
million.
They
are
prepared
under
the
historical
cost
convention,
except
that
derivative
financial
instruments
are
stated
at
their
fair
value,
and
in
accordance
with
applicable
United
Kingdom
accounting
standards
(UK
GAAP)
and
the
Companies
Act
2006.
As
permitted
by
s408(4)
of
the
Companies
Act
2006,
a
separate
profit
and
loss
account
for
the
Company
has
not
been
included
in
these
financial
statements.
As
permitted
by
FRS
1,
no
cash
flow
statement
for
the
Company
has
been
included
on
the
grounds
that
the
group
includes
the
Company
in
its
own
published
consolidated
financial
statements.
As
permitted
by
FRS
8,
no
related
party
disclosures
in
respect
of
transactions
with
wholly
owned
subsidiaries
have
been
included.
The
Company
has
taken
advantage
of
the
exemption
in
FRS
25
Financial
Instruments:
Disclosure
and
Presentation
,
not
to
prepare
a
note
to
the
financial
statements
relating
to
financial
instruments
as
the
information
is
available
in
the
published
financial
statements
of
the
group.
Intangible
assets
goodwill
Intangible
assets
consist
of
goodwill
arising
on
acquisitions
since
17
September
1998,
being
the
excess
of
the
fair
value
of
the
purchase
consideration
of
businesses
over
the
fair
value
of
net
assets
acquired.
Goodwill
is
capitalised
in
accordance
with
FRS
10
and
amortised
over
its
useful
life,
not
exceeding
20
years.
Goodwill
previously
written
off
against
reserves
has
not
been
reinstated.
Investments
in
subsidiaries
Investments
in
subsidiaries
are
reported
at
cost
less
any
provision
for
impairment.
Financial
instruments
All
financial
assets
and
financial
liabilities
are
measured
initially
at
fair
value,
plus
directly
attributable
transaction
costs,
and
thereafter
at
amortised
cost.
Pensions
and
other
post-employment
benefits
The
Company
operates
defined
contribution
and
defined
benefit
pension
schemes.
Contributions
to
the
defined
contribution
scheme
are
charged
to
the
profit
and
loss
account
as
they
become
payable.
The
principal
defined
benefit
scheme
is
a
multi-employer
scheme
and
the
Company
is
unable
to
identify
its
share
of
underlying
assets
and
liabilities
on
a
consistent
and
reasonable
basis.
Hence,
contributions
to
this
scheme
are
accounted
for
as
if
they
were
contributions
to
a
defined
contribution
scheme.
The
Company
has
one
small
unfunded
defined
benefit
scheme
which
it
accounts
for
in
accordance
with
FRS
17
using
the
advice
of
professional
actuaries.
The
amount
charged
to
the
profit
and
loss
account
is
the
cost
of
benefits
accruing
to
employees
over
the
year,
plus
any
benefit
improvements
granted
to
members
during
the
year.
It
also
includes
a
charge
equal
to
the
expected
interest
on
plan
liabilities
over
the
year.
The
present
value
of
plan
liabilities
is
disclosed
as
a
liability
on
the
balance
sheet
net
of
any
related
deferred
tax.
Share-based
payments
The
Share
Incentive
Plan
allows
employees
of
the
Company
to
receive
allocations
of
shares
to
be
distributed
subject
to
attainment
of
certain
financial
performance
criteria
and
typically
after
a
three-year
performance
period.
The
fair
value
of
the
shares
to
be
awarded
is
recognised
as
an
employee
expense
with
a
corresponding
increase
in
reserves.
The
fair
value
is
measured
at
grant
date
and
spread
over
the
period
during
which
the
executives
become
unconditionally
entitled
to
the
shares.
The
fair
value
of
the
shares
allocated
is
measured
taking
into
account
the
terms
and
conditions
under
which
the
shares
were
allocated.
The
amount
recognised
as
an
expense
is
adjusted
to
reflect
the
actual
number
of
shares
that
vest.
Where
the
Company
grants
allocations
of
shares
to
employees
of
its
subsidiaries,
these
are
accounted
for
on
the
same
basis
as
for
allocations
to
employees
of
the
Company,
except
that
the
fair
value
is
recognised
as
an
increase
to
investment
in
subsidiaries
with
a
corresponding
increase
in
reserves.
The
Share
Option
Scheme
(1994)
and
Executive
Share
Option
Scheme
(2000)
allow
executives
to
acquire
shares
of
the
Company.
The
fair
value
of
options
granted
is
recognised
as
an
employee
expense
with
a
corresponding
increase
in
reserves.
The
fair
value
is
measured
at
grant
date
and
spread
over
the
period
during
which
the
executives
become
unconditionally
entitled
to
the
options.
The
fair
value
of
the
options
granted
is
measured
using
a
binomial
lattice
model,
taking
into
account
the
terms
and
conditions
upon
which
the
options
were
granted.
The
amount
recognised
as
an
expense
is
adjusted
to
reflect
the
actual
number
of
share
options
that
vest
except
where
forfeiture
is
only
due
to
share
prices
not
achieving
the
threshold
for
vesting.
Shares
in
the
Company
are
held
in
a
separate
trust
and
are
shown
at
cost
as
a
deduction
in
arriving
at
equity
shareholders’
funds.
New
accounting
policies
Amendment
to
FRS
8
Related
party
disclosures
(effective
for
accounting
periods
beginning
on
or
after
6
April
2008).
The
amendment
to
FRS
8
eliminates
the
disclosure
exemption
for
transactions
with
subsidiaries
that
are
90%
owned
or
more.
The
disclosure
exemption
is
still
applicable
to
wholly
owned
subsidiaries.
The
amendment
requires
the
disclosure
of
corresponding
amounts,
where
applicable.
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
109
Financial
statements
//
Company
financial
statements
Notes
to
the
Company
financial
statements
for
the
year
ended
12
September
2009
1.
Intangible
assets
goodwill
£m
cost
At
13
September
2008
and
12
September
2009
71
amortisation
At
13
September
2008
27
Provided
during
the
year
5
at
12
september
2009
32
net
book
value
Net
book
value
at
13
September
2008
44
net
book
value
at
12
september
2009
39
2.
Investments
in
subsidiaries
£m
At
13
September
2008
444
Additions
182
at
12
september
2009
626
The
additions
relate
to
an
increase
in
the
investment
of
the
Company’s
wholly
owned
subsidiary,
ABF
Investments
plc,
and
the
allocation
of
shares
under
the
Share
Incentive
Plan
to
employees
of
the
Company’s
subsidiaries.
There
were
no
provisions
for
impairment
in
either
year.
3.
Debtors
2009
2008
£m
£m
amounts
falling
due
within
one
year
Amounts
owed
by
subsidiaries
2,430
2,208
Other
debtors
3
5
Corporation
tax
recoverable
45
26
2,478
2,239
amounts
falling
due
after
one
year
Amounts
owed
by
subsidiaries
1,406
1,372
Amounts
owed
by
joint
ventures
26
1,432
1,372
The
amount
owed
by
joint
ventures
comprises
a
loan
and
accrued
interest
owed
by
Vivergo
Fuels
Limited.
The
directors
consider
that
the
carrying
amount
of
debtors
approximates
their
fair
value.
4.
Other
creditors
2009
2008
£m
£m
amounts
falling
due
within
one
year
Other
taxation
and
social
security
1
1
Accruals
and
deferred
income
17
16
Amounts
owed
to
subsidiaries
1,118
1,050
1,136
1,067
amounts
falling
due
after
one
year
Amounts
owed
to
subsidiaries
2,421
2,119
The
directors
consider
that
the
carrying
amount
of
creditors
approximates
their
fair
value.
Financial
statements
//
Company
financial
statements
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
110
5.
Provisions
£m
At
13
September
2008
2
Created
122
Utilised
(2)
At
12
September
2009
122
Provisions
comprise
deferred
consideration
of
£122m
received
in
August
2009
in
respect
of
the
proposed
disposal
of
the
group’s
Polish
sugar
business.
6.
Capital
and
reserves
Ordinary
Deferred
shares
of
shares
of
5
15
22
p
Nominal
£1
each
each
value
000
000
£m
AuthoriSed
At
13
September
2008
and
12
September
2009
2,000
1,054,950
62
iSSued
And
fully
pAid
At
13
September
2008
and
12
September
2009
2,000
791,674
47
The
deferred
shares
became
redeemable
on
1
August
1997.
The
amount
payable
by
the
Company
on
redemption
is
the
amount
paid
up
on
the
deferred
shares.
Redemption
is
at
the
sole
discretion
of
the
Company.
Deferred
shares
carry
no
voting
rights
and
have
no
rights
to
dividends
or
other
income
distributions.
In
the
event
of
a
winding-up,
repayment
in
respect
of
the
deferred
shares
ranks
after
repayment
of
amounts
paid
up
on
the
ordinary
shares
of
the
Company.
The
deferred
shares
are
entitled
to
repayment
of
amounts
paid
up,
but
have
no
entitlement
to
any
surplus.
Profit
and
Share
capital
loss
reserve
Total
£m
£m
£m
At
13
September
2008
47
239
286
Net
movement
in
own
shares
held
(10)
(10)
Actuarial
losses
on
defined
benefit
pension
scheme
(1)
(1)
Profit
for
the
year
91
91
Dividends
(161)
(161)
At
12
September
2009
47
158
205
Dividends
Details
of
dividends
paid
and
proposed
are
provided
in
note
6
to
the
consolidated
financial
statements.
Own
shares
held
reserve
and
share-based
payments
Ordinary
shares
already
issued
and
subject
to
option
under
the
Associated
British
Foods
plc
1994
Share
Option
Scheme
and
the
Executive
Share
Option
Scheme
2000,
or
subject
to
allocation
under
the
Associated
British
Foods
plc
Executive
Share
Incentive
Plan
2003,
are
held
in
a
separate
trust.
The
trust
is
funded
by
the
Company.
At
12
September
2009,
the
trust
held
3,906,757
(2008
2,102,133)
ordinary
shares
of
the
Company.
The
market
value
of
these
shares
at
the
year
end
was
£33m
(2008
£17m).
The
trust
has
waived
its
right
to
dividends.
Refer
to
note
23
of
the
consolidated
financial
statements
for
further
information
on
the
group
and
Company’s
share-based
payment
plans.
7.
Contingent
liabilities
Where
the
Company
enters
into
financial
guarantee
contracts
to
guarantee
the
indebtedness
of
other
companies
within
its
group,
the
Company
considers
these
to
be
insurance
arrangements
and
accounts
for
them
as
such.
The
guarantee
contract
is
treated
as
a
contingent
liability
until
such
time
as
it
becomes
probable
that
the
Company
will
be
required
to
make
a
payment
under
the
guarantee.
The
Company
has
provided
£283m
of
guarantees
in
the
ordinary
course
of
business
as
at
12
September
2009
(2008
£nil).
These
relate
primarily
to
insurance
payment
obligations,
the
deferred
consideration
received
described
in
note
5,
and
the
fulfilment
of
obligations
to
the
Rural
Payments
Agency
in
respect
of
income
received
by
a
subsidiary
under
the
Sugar
Restructuring
Aid
Scheme.
The
guarantee
relating
to
deferred
consideration
expires
in
March
2010.
The
guarantee
to
the
Rural
Payments
Agency
is
expected
to
be
required
until
June
2010,
when
the
Company
expects
the
subsidiary
to
have
fulfilled
its
obligations
under
the
Scheme.
Notes
to
the
Company
financial
statements
continued
for
the
year
ended
12
September
2009
Associated
British
Foods
Annual
Report
and
Accounts
2009
++
111
Financial
statements
//
Company
financial
statements
8.
Related
parties
The
Company
has
a
controlling
related
party
relationship
with
its
parent
company,
Wittington
Investments
Limited,
which
is
also
its
ultimate
parent
company.
The
Company
also
has
a
related
party
relationship
with
its
subsidiaries,
associates
and
joint
ventures
and
directors.
In
the
course
of
normal
operations,
related
party
transactions
entered
into
by
the
Company
have
been
contracted
on
an
arm’s
length
basis.
Material
transactions
and
year
end
balances
with
related
parties
(excluding
wholly
owned
subsidiaries)
were
as
follows:
2009
2008
Sub
note
£000
£000
Charges
to
Wittington
Investments
Limited
in
respect
of
services
provided
by
the
Company
201
271
Charges
to
a
fellow
subsidiary
1
1
1
Dividends
paid
by
the
Company
and
received
in
a
beneficial
capacity
by:
(i)
trustees
of
the
Garfield
Weston
Foundation
1
6,142
6,063
(ii)
directors
of
Wittington
Investments
Limited
who
are
not
trustees
of
the
Foundation
1
806
780
(iii)
directors
of
the
Company
who
are
not
trustees
of
the
Foundation
and
are
not
directors
of
Wittington
Investments
Limited
1
12
15
(iv)
a
member
of
the
Weston
family
employed
within
the
ABF
group
1
596
576
Sales
to
non-wholly
owned
subsidiaries
on
normal
trading
terms
2
19
523
Interest
income
earned
from
non-wholly
owned
subsidiaries
2
2,172
2,725
Amounts
due
from
non-wholly
owned
subsidiaries
2
114,891
67,450
Amounts
due
to
non-wholly
owned
subsidiaries
2
10
13
Other
income
from
joint
ventures
and
associates
on
normal
trading
terms
2
14
1
Interest
income
earned
from
joint
ventures
2
231
507
Amounts
due
from
joint
venture
(debtor
due
after
more
than
one
year)
2
26,331
1.
Details
of
the
nature
of
the
relationships
with
these
bodies
are
set
out
in
notes
28
and
30
of
the
consolidated
financial
statements.
2.
Details
of
the
Company’s
subsidiaries,
associates
and
joint
ventures
are
set
out
in
note
30
of
the
consolidated
financial
statements.
9.
Other
information
Emoluments
of
directors
The
remuneration
of
the
directors
of
the
Company
is
shown
in
the
Remuneration
report
for
the
group
on
page
44.
Employees
The
Company
had
an
average
of
98
employees
in
2009
(2008
91).
The
Company
is
a
member
of
the
Associated
British
Foods
Pension
Scheme,
providing
benefits
based
on
final
pensionable
pay.
Prior
to
6
April
2006
some
of
the
employees
of
the
Company
were
members
of
the
British
Sugar
Pension
Scheme.
On
6
April
2006,
the
British
Sugar
Pension
Scheme
was
merged
with
the
Associated
British
Foods
Pension
Scheme.
Because
the
Company
is
unable
to
identify
its
share
of
the
scheme’s
assets
and
liabilities
on
a
consistent
basis,
as
permitted
by
FRS
17,
the
scheme
is
accounted
for
by
the
Company
as
if
it
were
a
defined
contribution
scheme.
On
30
September
2002
the
Scheme
was
closed
to
new
members,
with
defined
contribution
arrangements
introduced
for
these
members.
For
the
defined
contribution
scheme,
the
pension
costs
are
the
contributions
payable.
The
last
actuarial
valuation
of
the
Associated
British
Foods
Pension
Scheme
was
carried
out
as
at
5
April
2008.
At
the
valuation
date
the
total
market
value
of
the
assets
of
the
Scheme
was
£2,223m
and
represented
93%
of
the
benefits
that
had
accrued
to
members
after
allowing
for
expected
future
increases
in
earnings.
Following
completion
of
the
actuarial
valuation,
the
Company
agreed
to
make
five
annual
payments
of
£30m
in
order
to
eliminate
the
deficit
at
5
April
2008.
The
first
of
these
payments
was
made
in
March
2009.
The
particulars
of
the
actuarial
valuation
of
the
Scheme
are
contained
in
note
12
in
the
consolidated
financial
statements.
There
is
no
material
difference
in
the
valuation
methodologies
under
IAS
19
and
FRS
17.
Auditors’
fees
Note
2
to
the
consolidated
financial
statements
of
the
group
provides
details
of
the
remuneration
of
the
Company’s
auditors
on
a
group
basis.
++
Associated
British
Foods
Annual
Report
and
Accounts
2009
112
Financial
statements
//
Progress
report
Progress
report
Saturday
nearest
to
15
September
2005
2006
2007
2008
2009
£m
£m
£m
£m
£m
Revenue
5,622
5,996
6,800
8,235
9,255
Adjusted
operating
profit
555
561
622
664
720
Exceptional
items
(97)
(46)
Amortisation
of
non-operating
intangibles
(25)
(41)
(74)
(74)
(82)
Profits
less
losses
on
sale
of
property,
plant
&
equipment
20
10
8
10
(1)
Inventory
fair
value
adjustment
(12)
Profits
less
losses
on
sale
and
closure
of
businesses
(1)
(4)
(39)
5
(65)
Provision
for
loss
on
termination
of
an
operation
(47)
(8)
Finance
income
49
32
20
21
17
Finance
expense
(34)
(46)
(55)
(74)
(95)
Other
financial
income
10
12
26
21
13
Profit
before
taxation
527
419
508
527
495
Income
tax
expense
(141)
(111)
(108)
(136)
(112)
Profit
after
taxation
386
308
400
391
383
Basic
and
diluted
earnings
per
ordinary
share
(pence)
48.0
38.1
46.7
45.2
45.5
Adjusted
earnings
per
share
(pence)
52.5
50.9
52.9
54.9
57.7
Dividends
per
share
(pence)
18.0
18.75
19.5
20.25
21.0
Shareholder
information
//
Company
directory
Associated
British
Foods
plc
Registered
office
Weston
Centre
10
Grosvenor
Street
London
W1K
4QY
Company
registered
in
England,
number
293262
Company
Secretary
Paul
Lister
Registrars
and
transfer
office
Equiniti
Aspect
House
Spencer
Road
Lancing
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Auditors
KPMG
Audit
Plc
Chartered
Accountants
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Barclays
Bank
plc
Lloyds
Banking
Group
plc
The
Royal
Bank
of
Scotland
plc
Brokers
Credit
Suisse
Securities
(Europe)
Limited
One
Cabot
Square
London
E14
4QJ
Panmure
Gordon
&
Co
Moorgate
Hall
155
Moorgate
London
EC2M
6XB
Timetable
Interim
dividend
paid
3
July
2009
Final
dividend
to
be
paid
8
January
2010
Annual
general
meeting
4
December
2009
Interim
results
to
be
announced
20
April
2010
Website
www.abf.co.uk
Design
and
production
35
Communications
Photography
Igor
Emmerich
Louisa
Parry
Mike
Abrahams
Bill
Robinson
Print
This
report
has
been
printed
on
revive
50:50
Silk
paper.
This
paper
is
made
from
pre
and
post
consumer
waste
and
virgin
wood
fibre,
independently
certified
in
accordance
with
the
Forest
Stewardship
Council
(FSC).
It
is
manufactured
at
a
mill
that
is
certified
to
ISO
14001
environmental
management
standards.
The
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The
inks
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Printed
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certified
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This
report
contains
forward-looking
statements.
These
have
been
made
by
the
directors
in
good
faith
based
on
the
information
available
to
them
up
to
the
time
of
their
approval
of
this
report.
The
directors
can
give
no
assurance
that
these
expectations
will
prove
to
have
been
correct.
Due
to
the
inherent
uncertainties,
including
both
economic
and
business
risk
factors
underlying
such
forward-looking
information,
actual
results
may
differ
materially
from
those
expressed
or
implied
by
these
forward-looking
statements.
The
directors
undertake
no
obligation
to
update
any
forward-looking
statements
whether
as
a
result
of
new
information,
future
events
or
otherwise.
Associated
British
Foods
plc
Weston
Centre
10
Grosvenor
Street
London
W1K
4QY
Tel
+
44
(0)
20
7399
6500
Fax
+
44
(0)
20
7399
6580
For
an
accessible
version
of
the
Annual
Report
and
Accounts
please
visit
www.abf.co.uk